Correlation Between First Trust and IShares Residential

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

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

Diversification Opportunities for First Trust and IShares Residential

-0.19

Correlation Coefficient

First Trust  IShares Residential

Good diversification

The 3 months correlation between First and IShares is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Consumer and iShares Residential and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Residential and 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 Consumer are associated (or correlated) with IShares Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Residential and has no effect on the direction of First Trust i.e., First Trust and IShares Residential go up and down completely randomly.

Pair Corralation between First Trust and IShares Residential

Considering the 90-day investment horizon First Trust Consumer is expected to generate 0.88 times more return on investment than IShares Residential. However, First Trust Consumer is 1.13 times less risky than IShares Residential. It trades about 0.22 of its potential returns per unit of risk. iShares Residential and is currently generating about -0.08 per unit of risk. If you would invest  6,032  in First Trust Consumer on September 12, 2024 and sell it today you would earn a total of  748.00  from holding First Trust Consumer or generate 12.4% return on investment over 90 days.

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

First Trust Consumer  vs.  iShares Residential and

First Trust Consumer

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Consumer are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Residential and

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Residential and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, IShares Residential 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 Residential

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

The idea behind First Trust Consumer and iShares Residential and 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .