Correlation Between First Trust and IShares Edge
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Edge 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 Edge 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 Edge High, you can compare the effects of market volatilities on First Trust and IShares Edge 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 Edge. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Edge.
Diversification Opportunities for First Trust and IShares Edge
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between First and IShares is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Low and iShares Edge High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge High 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 Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge High has no effect on the direction of First Trust i.e., First Trust and IShares Edge go up and down completely randomly.
Pair Corralation between First Trust and IShares Edge
Given the investment horizon of 90 days First Trust is expected to generate 4.89 times less return on investment than IShares Edge. But when comparing it to its historical volatility, First Trust Low is 1.31 times less risky than IShares Edge. It trades about 0.06 of its potential returns per unit of risk. iShares Edge High is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 4,727 in iShares Edge High on August 30, 2024 and sell it today you would earn a total of 58.00 from holding iShares Edge High or generate 1.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Low vs. iShares Edge High
Performance |
| Timeline |
| First Trust Low |
| iShares Edge High |
First Trust and IShares Edge Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares Edge
The main advantage of trading using opposite First Trust and IShares Edge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Edge 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 Edge will offset losses from the drop in IShares Edge's long position.| First Trust vs. FlexShares Disciplined Duration | First Trust vs. Vanguard Mortgage Backed Securities | First Trust vs. Simplify Exchange Traded | First Trust vs. WisdomTree Mortgage Plus |
| IShares Edge vs. iShares Edge Investment | IShares Edge vs. iShares Intl High | IShares Edge vs. iShares JP Morgan |
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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