Correlation Between IShares Canadian and First Trust
Can any of the company-specific risk be diversified away by investing in both IShares Canadian 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 Canadian 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 Canadian Universe and First Trust NASDAQ, you can compare the effects of market volatilities on IShares Canadian 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 Canadian with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Canadian and First Trust.
Diversification Opportunities for IShares Canadian and First Trust
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between IShares and First is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian Universe and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ and IShares Canadian 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 Canadian Universe 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 NASDAQ has no effect on the direction of IShares Canadian i.e., IShares Canadian and First Trust go up and down completely randomly.
Pair Corralation between IShares Canadian and First Trust
Assuming the 90 days trading horizon IShares Canadian is expected to generate 4.26 times less return on investment than First Trust. But when comparing it to its historical volatility, iShares Canadian Universe is 2.65 times less risky than First Trust. It trades about 0.07 of its potential returns per unit of risk. First Trust NASDAQ is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 3,370 in First Trust NASDAQ on August 31, 2024 and sell it today you would earn a total of 1,747 from holding First Trust NASDAQ or generate 51.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Canadian Universe vs. First Trust NASDAQ
Performance |
| Timeline |
| iShares Canadian Universe |
| First Trust NASDAQ |
IShares Canadian and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Canadian and First Trust
The main advantage of trading using opposite IShares Canadian and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Canadian 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 Canadian vs. iShares Canadian Short | IShares Canadian vs. iShares MSCI EAFE | IShares Canadian vs. iShares Core Canadian | IShares Canadian vs. iShares Canadian Real |
| First Trust vs. Brompton Global Dividend | First Trust vs. Global Healthcare Income | First Trust vs. Tech Leaders Income | First Trust vs. Brompton North American |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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