Correlation Between IShares SP and First Trust

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

Diversification Opportunities for IShares SP and First Trust

0.98

Correlation Coefficient

IShares SP  First Trust

Almost no diversification

The 3 months correlation between IShares and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Mid Cap and First Trust RBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RBA and IShares SP 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 SP Mid Cap 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 RBA has no effect on the direction of IShares SP i.e., IShares SP and First Trust go up and down completely randomly.

Pair Corralation between IShares SP and First Trust

Considering the 90-day investment horizon IShares SP is expected to generate 1.23 times less return on investment than First Trust. In addition to that, IShares SP is 1.07 times more volatile than First Trust RBA. It trades about 0.15 of its total potential returns per unit of risk. First Trust RBA is currently generating about 0.2 per unit of volatility. If you would invest  3,622  in First Trust RBA on August 30, 2024 and sell it today you would earn a total of  456.00  from holding First Trust RBA or generate 12.59% return on investment over 90 days.

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

iShares SP Mid Cap  vs.  First Trust RBA

iShares SP Mid

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Mid Cap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady forward-looking indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

First Trust RBA

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust RBA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady forward indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares SP and First Trust

The main advantage of trading using opposite IShares SP and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP 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 SP Mid Cap and First Trust RBA 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.