Correlation Between IShares Europe and First Trust
Can any of the company-specific risk be diversified away by investing in both IShares Europe and First Trust 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 IShares Europe and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Europe ETF and First Trust IPOX, you can compare the effects of market volatilities on IShares Europe and First Trust 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 IShares Europe with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Europe and First Trust.
Diversification Opportunities for IShares Europe and First Trust
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between IShares and First is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding iShares Europe ETF and First Trust IPOX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust IPOX and IShares Europe 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 iShares Europe ETF are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust IPOX has no effect on the direction of IShares Europe i.e., IShares Europe and First Trust go up and down completely randomly.
Pair Corralation between IShares Europe and First Trust
Considering the 90-day investment horizon iShares Europe ETF is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, iShares Europe ETF is 1.19 times less risky than First Trust. The etf trades about -0.01 of its potential returns per unit of risk. The First Trust IPOX is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,554 in First Trust IPOX on September 15, 2024 and sell it today you would earn a total of 115.00 from holding First Trust IPOX or generate 4.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Europe ETF vs. First Trust IPOX
Performance |
| Timeline |
| iShares Europe ETF |
| First Trust IPOX |
IShares Europe and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Europe and First Trust
The main advantage of trading using opposite IShares Europe and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Europe position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| IShares Europe vs. iShares MSCI Eurozone | IShares Europe vs. iShares MSCI Pacific | IShares Europe vs. iShares Latin America | IShares Europe vs. iShares MSCI France |
| First Trust vs. First Trust International | First Trust vs. First Trust Developed | First Trust vs. First Trust Dorsey |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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