Correlation Between First Trust and IShares Transportation
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Transportation 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 Transportation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Exchange Traded and iShares Transportation Average, you can compare the effects of market volatilities on First Trust and IShares Transportation 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 Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Transportation.
Diversification Opportunities for First Trust and IShares Transportation
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between First and IShares is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and iShares Transportation Average in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Transportation 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 Exchange Traded are associated (or correlated) with IShares Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Transportation has no effect on the direction of First Trust i.e., First Trust and IShares Transportation go up and down completely randomly.
Pair Corralation between First Trust and IShares Transportation
Given the investment horizon of 90 days First Trust is expected to generate 3.31 times less return on investment than IShares Transportation. But when comparing it to its historical volatility, First Trust Exchange Traded is 1.61 times less risky than IShares Transportation. It trades about 0.05 of its potential returns per unit of risk. iShares Transportation Average is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 6,381 in iShares Transportation Average on August 29, 2024 and sell it today you would earn a total of 1,083 from holding iShares Transportation Average or generate 16.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Exchange Traded vs. iShares Transportation Average
Performance |
| Timeline |
| First Trust Exchange |
| iShares Transportation |
First Trust and IShares Transportation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares Transportation
The main advantage of trading using opposite First Trust and IShares Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Transportation 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 Transportation will offset losses from the drop in IShares Transportation's long position.| First Trust vs. First Trust Exchange Traded | First Trust vs. First Trust Expanded | First Trust vs. BlackRock Future Health | First Trust vs. SPDR SP Health |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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