Correlation Between IShares MSCI and First Trust
Can any of the company-specific risk be diversified away by investing in both IShares MSCI 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 MSCI 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 MSCI USA and First Trust Small, you can compare the effects of market volatilities on IShares MSCI 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 MSCI with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and First Trust.
Diversification Opportunities for IShares MSCI and First Trust
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and First is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and First Trust Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Small and IShares MSCI 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 MSCI USA 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 Small has no effect on the direction of IShares MSCI i.e., IShares MSCI and First Trust go up and down completely randomly.
Pair Corralation between IShares MSCI and First Trust
Given the investment horizon of 90 days iShares MSCI USA is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI USA is 1.39 times less risky than First Trust. The etf trades about -0.18 of its potential returns per unit of risk. The First Trust Small is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 5,963 in First Trust Small on September 12, 2024 and sell it today you would lose (1.00) from holding First Trust Small or give up 0.02% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares MSCI USA vs. First Trust Small
Performance |
| Timeline |
| iShares MSCI USA |
| First Trust Small |
IShares MSCI and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and First Trust
The main advantage of trading using opposite IShares MSCI and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI 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 MSCI vs. Vanguard Value Index | IShares MSCI vs. Vanguard High Dividend | IShares MSCI vs. iShares Russell 1000 | IShares MSCI vs. iShares Core Dividend |
| First Trust vs. First Trust Mid | First Trust vs. First Trust Small | First Trust vs. First Trust Mid | First Trust vs. First Trust Small |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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