Correlation Between Vanguard Short and First Trust

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

By analyzing existing cross correlation between Vanguard Short Term Bond and First Trust Low, you can compare the effects of market volatilities on Vanguard Short 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 Vanguard Short with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short and First Trust.

Diversification Opportunities for Vanguard Short and First Trust

0.88

Correlation Coefficient

Vanguard Short  First Trust

Very poor diversification

The 3 months correlation between Vanguard and First is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Bond and First Trust Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Low and Vanguard Short 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 Vanguard Short Term Bond 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 Low has no effect on the direction of Vanguard Short i.e., Vanguard Short and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Short and First Trust

Considering the 90-day investment horizon Vanguard Short Term Bond is expected to generate 0.91 times more return on investment than First Trust. However, Vanguard Short Term Bond is 1.1 times less risky than First Trust. It trades about 0.24 of its potential returns per unit of risk. First Trust Low is currently generating about 0.17 per unit of risk. If you would invest  7,678  in Vanguard Short Term Bond on December 30, 2024 and sell it today you would earn a total of  146.00  from holding Vanguard Short Term Bond or generate 1.9% return on investment over 90 days.

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

Vanguard Short Term Bond  vs.  First Trust Low

Vanguard Short Term

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Bond are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Short 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 Low

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Low are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Short and First Trust

The main advantage of trading using opposite Vanguard Short and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short 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 Vanguard Short Term Bond and First Trust Low 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.