Correlation Between IShares Financial and First Trust
Can any of the company-specific risk be diversified away by investing in both IShares Financial 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 Financial 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 Financial Services and First Trust Large, you can compare the effects of market volatilities on IShares Financial 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 Financial with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Financial and First Trust.
Diversification Opportunities for IShares Financial and First Trust
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and First is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financial Services and First Trust Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Large and IShares Financial 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 Financial Services 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 Large has no effect on the direction of IShares Financial i.e., IShares Financial and First Trust go up and down completely randomly.
Pair Corralation between IShares Financial and First Trust
Considering the 90-day investment horizon iShares Financial Services is expected to generate 1.47 times more return on investment than First Trust. However, IShares Financial is 1.47 times more volatile than First Trust Large. It trades about 0.27 of its potential returns per unit of risk. First Trust Large is currently generating about 0.31 per unit of risk. If you would invest 7,665 in iShares Financial Services on October 20, 2024 and sell it today you would earn a total of 478.00 from holding iShares Financial Services or generate 6.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Financial Services vs. First Trust Large
Performance |
| Timeline |
| iShares Financial |
| First Trust Large |
IShares Financial and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Financial and First Trust
The main advantage of trading using opposite IShares Financial and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Financial 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 Financial vs. iShares Financials ETF | IShares Financial vs. iShares Consumer Discretionary | IShares Financial vs. iShares Industrials ETF | IShares Financial vs. iShares Consumer Staples |
| First Trust vs. First Trust Large | First Trust vs. First Trust Small | First Trust vs. First Trust Mid | 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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