Correlation Between First Trust and IShares Semiconductor

Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Semiconductor 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 Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Trust NASDAQ and iShares Semiconductor ETF, you can compare the effects of market volatilities on First Trust and IShares Semiconductor 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 Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Semiconductor.

Diversification Opportunities for First Trust and IShares Semiconductor

0.02

Correlation Coefficient

First Trust  IShares Semiconductor

Significant diversification

The 3 months correlation between First and IShares is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and iShares Semiconductor ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Semiconductor ETF 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 NASDAQ are associated (or correlated) with IShares Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Semiconductor ETF has no effect on the direction of First Trust i.e., First Trust and IShares Semiconductor go up and down completely randomly.

Pair Corralation between First Trust and IShares Semiconductor

Given the investment horizon of 90 days First Trust NASDAQ is expected to generate 0.64 times more return on investment than IShares Semiconductor. However, First Trust NASDAQ is 1.57 times less risky than IShares Semiconductor. It trades about 0.15 of its potential returns per unit of risk. iShares Semiconductor ETF is currently generating about -0.01 per unit of risk. If you would invest  5,752  in First Trust NASDAQ on September 12, 2024 and sell it today you would earn a total of  637.00  from holding First Trust NASDAQ or generate 11.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

First Trust NASDAQ  vs.  iShares Semiconductor ETF

First Trust NASDAQ

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental drivers, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Semiconductor ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Semiconductor ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, IShares Semiconductor is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and IShares Semiconductor

The main advantage of trading using opposite First Trust and IShares Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Semiconductor 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 Semiconductor will offset losses from the drop in IShares Semiconductor's long position.

The idea behind First Trust NASDAQ and iShares Semiconductor ETF 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.

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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.