Correlation Between IShares Morningstar and First Trust
Can any of the company-specific risk be diversified away by investing in both IShares Morningstar 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 Morningstar 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 Morningstar Small Cap and First Trust Mid, you can compare the effects of market volatilities on IShares Morningstar 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 Morningstar with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Morningstar and First Trust.
Diversification Opportunities for IShares Morningstar and First Trust
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and First is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares Morningstar Small Cap and First Trust Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mid and IShares Morningstar 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 Morningstar Small Cap 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 Mid has no effect on the direction of IShares Morningstar i.e., IShares Morningstar and First Trust go up and down completely randomly.
Pair Corralation between IShares Morningstar and First Trust
Considering the 90-day investment horizon IShares Morningstar is expected to generate 1.26 times less return on investment than First Trust. In addition to that, IShares Morningstar is 1.05 times more volatile than First Trust Mid. It trades about 0.09 of its total potential returns per unit of risk. First Trust Mid is currently generating about 0.11 per unit of volatility. If you would invest 7,357 in First Trust Mid on August 24, 2024 and sell it today you would earn a total of 1,242 from holding First Trust Mid or generate 16.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Morningstar Small Cap vs. First Trust Mid
Performance |
| Timeline |
| iShares Morningstar |
| First Trust Mid |
IShares Morningstar and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Morningstar and First Trust
The main advantage of trading using opposite IShares Morningstar and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Morningstar 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 Morningstar vs. First Trust Mid | IShares Morningstar vs. First Trust Small | IShares Morningstar vs. First Trust Small | IShares Morningstar vs. First Trust Mid |
| First Trust vs. First Trust Small | First Trust vs. First Trust Mid | First Trust vs. First Trust Small | First Trust vs. First Trust Multi |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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