Correlation Between IShares Trust and First Trust
Can any of the company-specific risk be diversified away by investing in both IShares Trust 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 Trust 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 Trust and First Trust Enhanced, you can compare the effects of market volatilities on IShares Trust 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 Trust with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Trust and First Trust.
Diversification Opportunities for IShares Trust and First Trust
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and First is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and First Trust Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Enhanced and IShares 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 iShares Trust 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 Enhanced has no effect on the direction of IShares Trust i.e., IShares Trust and First Trust go up and down completely randomly.
Pair Corralation between IShares Trust and First Trust
Given the investment horizon of 90 days iShares Trust is expected to generate 0.82 times more return on investment than First Trust. However, iShares Trust is 1.22 times less risky than First Trust. It trades about 0.16 of its potential returns per unit of risk. First Trust Enhanced is currently generating about 0.11 per unit of risk. If you would invest 2,402 in iShares Trust on August 31, 2024 and sell it today you would earn a total of 766.00 from holding iShares Trust or generate 31.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 74.6% |
| Values | Daily Returns |
iShares Trust vs. First Trust Enhanced
Performance |
| Timeline |
| iShares Trust |
| First Trust Enhanced |
IShares Trust and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Trust and First Trust
The main advantage of trading using opposite IShares Trust and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust 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 Trust vs. Prime Medicine, Common | IShares Trust vs. Harbor ETF Trust | IShares Trust vs. IQ Healthy Hearts | IShares Trust vs. DBX ETF Trust |
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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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