Correlation Between First Trust and IShares BB

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

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

Diversification Opportunities for First Trust and IShares BB

0.83

Correlation Coefficient

First Trust  IShares BB

Very poor diversification

The 3 months correlation between First and IShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Tactical and iShares BB Rated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares BB Rated 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 Tactical are associated (or correlated) with IShares BB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares BB Rated has no effect on the direction of First Trust i.e., First Trust and IShares BB go up and down completely randomly.

Pair Corralation between First Trust and IShares BB

Given the investment horizon of 90 days First Trust Tactical is expected to generate 0.9 times more return on investment than IShares BB. However, First Trust Tactical is 1.11 times less risky than IShares BB. It trades about 0.13 of its potential returns per unit of risk. iShares BB Rated is currently generating about 0.06 per unit of risk. If you would invest  4,123  in First Trust Tactical on September 4, 2024 and sell it today you would earn a total of  63.00  from holding First Trust Tactical or generate 1.53% return on investment over 90 days.

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

First Trust Tactical  vs.  iShares BB Rated

First Trust Tactical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Tactical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, First Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares BB Rated

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares BB Rated are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, IShares BB is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and IShares BB

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

The idea behind First Trust Tactical and iShares BB Rated 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..