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 Australia and First Trust Latin, 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

0.83

Correlation Coefficient

IShares MSCI  First Trust

Very poor diversification

The 3 months correlation between IShares and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Australia and First Trust Latin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Latin 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 Australia 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 Latin 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

Considering the 90-day investment horizon iShares MSCI Australia is expected to generate 0.86 times more return on investment than First Trust. However, iShares MSCI Australia is 1.16 times less risky than First Trust. It trades about -0.15 of its potential returns per unit of risk. First Trust Latin is currently generating about -0.22 per unit of risk. If you would invest  2,646  in iShares MSCI Australia on October 1, 2024 and sell it today you would lose (240.00) from holding iShares MSCI Australia or give up 9.07% of portfolio value over 90 days.

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

iShares MSCI Australia  vs.  First Trust Latin

iShares MSCI Australia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Australia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

First Trust Latin

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Latin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's essential indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

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.

The idea behind iShares MSCI Australia and First Trust Latin 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.