Correlation Between First Trust and IShares MSCI

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Can any of the company-specific risk be diversified away by investing in both First Trust and IShares MSCI 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 MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Japan and IShares MSCI Japan, you can compare the effects of market volatilities on First Trust and IShares MSCI 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 MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares MSCI.

Diversification Opportunities for First Trust and IShares MSCI

0.98
  Correlation Coefficient

Almost no diversification

The 3 months correlation between First and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Japan and IShares MSCI Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IShares MSCI Japan 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 Japan are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IShares MSCI Japan has no effect on the direction of First Trust i.e., First Trust and IShares MSCI go up and down completely randomly.

Pair Corralation between First Trust and IShares MSCI

Considering the 90-day investment horizon First Trust is expected to generate 1.07 times less return on investment than IShares MSCI. In addition to that, First Trust is 1.16 times more volatile than IShares MSCI Japan. It trades about 0.2 of its total potential returns per unit of risk. IShares MSCI Japan is currently generating about 0.25 per unit of volatility. If you would invest  3,161  in IShares MSCI Japan on December 30, 2023 and sell it today you would earn a total of  162.00  from holding IShares MSCI Japan or generate 5.12% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

First Trust Japan  vs.  IShares MSCI Japan

 Performance 
       Timeline  
First Trust Japan 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Japan are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward-looking indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2024.
IShares MSCI Japan 

Risk-Adjusted Performance

22 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in IShares MSCI Japan are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking indicators, IShares MSCI showed solid returns over the last few months and may actually be approaching a breakup point.

First Trust and IShares MSCI Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First Trust and IShares MSCI

The main advantage of trading using opposite First Trust and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares MSCI 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 MSCI will offset losses from the drop in IShares MSCI's long position.
The idea behind First Trust Japan and IShares MSCI Japan 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.
Check out your portfolio center.
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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