Correlation Between First Trust and IShares Morningstar
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Morningstar 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 Morningstar 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 Morningstar Small Cap, you can compare the effects of market volatilities on First Trust and IShares Morningstar 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 Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Morningstar.
Diversification Opportunities for First Trust and IShares Morningstar
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Small and iShares Morningstar Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar 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 Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of First Trust i.e., First Trust and IShares Morningstar go up and down completely randomly.
Pair Corralation between First Trust and IShares Morningstar
Considering the 90-day investment horizon First Trust Small is expected to under-perform the IShares Morningstar. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Small is 1.07 times less risky than IShares Morningstar. The etf trades about -0.06 of its potential returns per unit of risk. The iShares Morningstar Small Cap is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 5,100 in iShares Morningstar Small Cap on November 18, 2024 and sell it today you would earn a total of 22.00 from holding iShares Morningstar Small Cap or generate 0.43% 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 Morningstar Small Cap
Performance |
| Timeline |
| First Trust Small |
| iShares Morningstar |
First Trust and IShares Morningstar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares Morningstar
The main advantage of trading using opposite First Trust and IShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Morningstar 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 Morningstar will offset losses from the drop in IShares Morningstar's long position.| First Trust vs. First Trust Mid | First Trust vs. First Trust Large | First Trust vs. First Trust Large | First Trust vs. First Trust Large |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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