Correlation Between IShares Core and First Trust
Can any of the company-specific risk be diversified away by investing in both IShares Core 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 Core 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 Core Total and First Trust Low, you can compare the effects of market volatilities on IShares Core 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 Core with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and First Trust.
Diversification Opportunities for IShares Core and First Trust
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and First is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Total and First Trust Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Low and IShares Core 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 Core Total 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 Low has no effect on the direction of IShares Core i.e., IShares Core and First Trust go up and down completely randomly.
Pair Corralation between IShares Core and First Trust
Given the investment horizon of 90 days iShares Core Total is expected to under-perform the First Trust. In addition to that, IShares Core is 1.56 times more volatile than First Trust Low. It trades about -0.04 of its total potential returns per unit of risk. First Trust Low is currently generating about -0.04 per unit of volatility. If you would invest 4,871 in First Trust Low on August 27, 2024 and sell it today you would lose (8.00) from holding First Trust Low or give up 0.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Core Total vs. First Trust Low
Performance |
| Timeline |
| iShares Core Total |
| First Trust Low |
IShares Core and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Core and First Trust
The main advantage of trading using opposite IShares Core and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 Core vs. First Trust Low | IShares Core vs. First Trust Enhanced | IShares Core vs. First Trust Tactical | IShares Core vs. First Trust Managed |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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