Correlation Between IShares Semiconductor and First Trust
Can any of the company-specific risk be diversified away by investing in both IShares Semiconductor 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 Semiconductor 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 Semiconductor ETF and First Trust North, you can compare the effects of market volatilities on IShares Semiconductor 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 Semiconductor with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Semiconductor and First Trust.
Diversification Opportunities for IShares Semiconductor and First Trust
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between IShares and First is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding iShares Semiconductor ETF and First Trust North in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust North and IShares Semiconductor 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 Semiconductor ETF 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 North has no effect on the direction of IShares Semiconductor i.e., IShares Semiconductor and First Trust go up and down completely randomly.
Pair Corralation between IShares Semiconductor and First Trust
Given the investment horizon of 90 days iShares Semiconductor ETF is expected to under-perform the First Trust. In addition to that, IShares Semiconductor is 1.64 times more volatile than First Trust North. It trades about -0.05 of its total potential returns per unit of risk. First Trust North is currently generating about 0.12 per unit of volatility. If you would invest 3,565 in First Trust North on September 13, 2024 and sell it today you would earn a total of 84.00 from holding First Trust North or generate 2.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Semiconductor ETF vs. First Trust North
Performance |
| Timeline |
| iShares Semiconductor ETF |
| First Trust North |
IShares Semiconductor and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Semiconductor and First Trust
The main advantage of trading using opposite IShares Semiconductor and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Semiconductor 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.The idea behind iShares Semiconductor ETF and First Trust North 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.
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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