Correlation Between First Trust and IShares Convertible

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

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

Diversification Opportunities for First Trust and IShares Convertible

0.97

Correlation Coefficient

First Trust  IShares Convertible

Almost no diversification

The 3 months correlation between First and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange and iShares Convertible Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Convertible Bond 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 Exchange are associated (or correlated) with IShares Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Convertible Bond has no effect on the direction of First Trust i.e., First Trust and IShares Convertible go up and down completely randomly.

Pair Corralation between First Trust and IShares Convertible

Given the investment horizon of 90 days First Trust is expected to generate 1.86 times less return on investment than IShares Convertible. But when comparing it to its historical volatility, First Trust Exchange is 1.38 times less risky than IShares Convertible. It trades about 0.23 of its potential returns per unit of risk. iShares Convertible Bond is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  8,088  in iShares Convertible Bond on September 13, 2024 and sell it today you would earn a total of  779.00  from holding iShares Convertible Bond or generate 9.63% return on investment over 90 days.

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

First Trust Exchange  vs.  iShares Convertible Bond

First Trust Exchange

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Convertible Bond

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Convertible Bond are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, IShares Convertible may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and IShares Convertible

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

The idea behind First Trust Exchange and iShares Convertible Bond 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.