Correlation Between First Trust and IShares Russell
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Russell at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining First Trust and IShares Russell into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Small and iShares Russell Mid Cap, you can compare the effects of market volatilities on First Trust and IShares Russell and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in First Trust with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Russell.
Diversification Opportunities for First Trust and IShares Russell
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Small and iShares Russell Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell Mid and First Trust is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on First Trust Small are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell Mid has no effect on the direction of First Trust i.e., First Trust and IShares Russell go up and down completely randomly.
Pair Corralation between First Trust and IShares Russell
Considering the 90-day investment horizon First Trust Small is expected to generate 1.58 times more return on investment than IShares Russell. However, First Trust is 1.58 times more volatile than iShares Russell Mid Cap. It trades about 0.12 of its potential returns per unit of risk. iShares Russell Mid Cap is currently generating about 0.11 per unit of risk. If you would invest 6,387 in First Trust Small on August 27, 2024 and sell it today you would earn a total of 1,933 from holding First Trust Small or generate 30.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Small vs. iShares Russell Mid Cap
Performance |
| Timeline |
| First Trust Small |
| iShares Russell Mid |
First Trust and IShares Russell Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares Russell
The main advantage of trading using opposite First Trust and IShares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Russell can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in IShares Russell will offset losses from the drop in IShares Russell's long position.| First Trust vs. Invesco DWA Momentum | First Trust vs. Invesco DWA Developed | First Trust vs. Invesco DWA Emerging | First Trust vs. First Trust Small |
| IShares Russell vs. iShares Russell Mid Cap | IShares Russell vs. iShares Russell 2000 | IShares Russell vs. iShares Russell Mid Cap | IShares Russell vs. iShares Russell 1000 |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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