Correlation Between First Trust and IShares JPX

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

By analyzing existing cross correlation between First Trust SkyBridge and iShares JPX Nikkei 400, you can compare the effects of market volatilities on First Trust and IShares JPX 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 JPX. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares JPX.

Diversification Opportunities for First Trust and IShares JPX

-0.64

Correlation Coefficient

First Trust  IShares JPX

Excellent diversification

The 3 months correlation between First and IShares is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SkyBridge and iShares JPX Nikkei 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares JPX Nikkei 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 SkyBridge are associated (or correlated) with IShares JPX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares JPX Nikkei has no effect on the direction of First Trust i.e., First Trust and IShares JPX go up and down completely randomly.

Pair Corralation between First Trust and IShares JPX

Given the investment horizon of 90 days First Trust SkyBridge is expected to generate 4.7 times more return on investment than IShares JPX. However, First Trust is 4.7 times more volatile than iShares JPX Nikkei 400. It trades about 0.1 of its potential returns per unit of risk. iShares JPX Nikkei 400 is currently generating about 0.06 per unit of risk. If you would invest  373.00  in First Trust SkyBridge on September 4, 2024 and sell it today you would earn a total of  1,671  from holding First Trust SkyBridge or generate 447.99% return on investment over 90 days.

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

First Trust SkyBridge  vs.  iShares JPX Nikkei 400

First Trust SkyBridge

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SkyBridge are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, First Trust unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares JPX Nikkei

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares JPX Nikkei 400 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares JPX is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and IShares JPX

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

The idea behind First Trust SkyBridge and iShares JPX Nikkei 400 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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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.