Correlation Between IShares Expanded and First Trust

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

Diversification Opportunities for IShares Expanded and First Trust

0.97

Correlation Coefficient

IShares Expanded  First Trust

Almost no diversification

The 3 months correlation between IShares and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares Expanded Tech and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ and IShares Expanded 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 Expanded Tech 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 NASDAQ has no effect on the direction of IShares Expanded i.e., IShares Expanded and First Trust go up and down completely randomly.

Pair Corralation between IShares Expanded and First Trust

Considering the 90-day investment horizon iShares Expanded Tech is expected to generate 1.0 times more return on investment than First Trust. However, IShares Expanded is 1.0 times more volatile than First Trust NASDAQ. It trades about 0.19 of its potential returns per unit of risk. First Trust NASDAQ is currently generating about 0.15 per unit of risk. If you would invest  8,925  in iShares Expanded Tech on September 4, 2024 and sell it today you would earn a total of  1,326  from holding iShares Expanded Tech or generate 14.86% return on investment over 90 days.

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

iShares Expanded Tech  vs.  First Trust NASDAQ

iShares Expanded Tech

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Expanded Tech are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, IShares Expanded displayed solid returns over the last few months and may actually be approaching a breakup point.

First Trust NASDAQ

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental drivers, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Expanded and First Trust

The main advantage of trading using opposite IShares Expanded and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Expanded 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 Expanded Tech and First Trust NASDAQ 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.