Correlation Between IShares International and First Trust

Can any of the company-specific risk be diversified away by investing in both IShares International 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 International 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 International Select and First Trust RiverFront, you can compare the effects of market volatilities on IShares International 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 International with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares International and First Trust.

Diversification Opportunities for IShares International and First Trust

0.96

Correlation Coefficient

IShares International  First Trust

Almost no diversification

The 3 months correlation between IShares and First is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares International Select and First Trust RiverFront in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RiverFront and IShares International 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 International Select 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 RiverFront has no effect on the direction of IShares International i.e., IShares International and First Trust go up and down completely randomly.

Pair Corralation between IShares International and First Trust

Considering the 90-day investment horizon iShares International Select is expected to generate 1.04 times more return on investment than First Trust. However, IShares International is 1.04 times more volatile than First Trust RiverFront. It trades about -0.02 of its potential returns per unit of risk. First Trust RiverFront is currently generating about -0.06 per unit of risk. If you would invest  2,906  in iShares International Select on September 2, 2024 and sell it today you would lose (34.00) from holding iShares International Select or give up 1.17% of portfolio value over 90 days.

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

iShares International Select  vs.  First Trust RiverFront

iShares International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares International Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, IShares International is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

First Trust RiverFront

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust RiverFront has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares International and First Trust

The main advantage of trading using opposite IShares International and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares International 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 International Select and First Trust RiverFront 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..