Correlation Between First Trust and IShares Agency
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Agency 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 First Trust and IShares Agency into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Low and iShares Agency Bond, you can compare the effects of market volatilities on First Trust and IShares Agency 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 First Trust with a short position of IShares Agency. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Agency.
Diversification Opportunities for First Trust and IShares Agency
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and IShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Low and iShares Agency Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Agency Bond and First 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 First Trust Low are associated (or correlated) with IShares Agency. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Agency Bond has no effect on the direction of First Trust i.e., First Trust and IShares Agency go up and down completely randomly.
Pair Corralation between First Trust and IShares Agency
Given the investment horizon of 90 days First Trust is expected to generate 1.49 times less return on investment than IShares Agency. In addition to that, First Trust is 1.1 times more volatile than iShares Agency Bond. It trades about 0.03 of its total potential returns per unit of risk. iShares Agency Bond is currently generating about 0.04 per unit of volatility. If you would invest 10,865 in iShares Agency Bond on August 27, 2024 and sell it today you would earn a total of 17.00 from holding iShares Agency Bond or generate 0.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Low vs. iShares Agency Bond
Performance |
| Timeline |
| First Trust Low |
| iShares Agency Bond |
First Trust and IShares Agency Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares Agency
The main advantage of trading using opposite First Trust and IShares Agency positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Agency 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 IShares Agency will offset losses from the drop in IShares Agency's long position.The idea behind First Trust Low and iShares Agency Bond pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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