Correlation Between First Trust and Vanguard Conservative

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

By analyzing existing cross correlation between First Trust Global and Vanguard Conservative Income, you can compare the effects of market volatilities on First Trust and Vanguard Conservative 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 Vanguard Conservative. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Vanguard Conservative.

Diversification Opportunities for First Trust and Vanguard Conservative

0.83

Correlation Coefficient

First Trust  Vanguard Conservative

Very poor diversification

The 3 months correlation between First and Vanguard is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Global and Vanguard Conservative Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Conservative 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 Global are associated (or correlated) with Vanguard Conservative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Conservative has no effect on the direction of First Trust i.e., First Trust and Vanguard Conservative go up and down completely randomly.

Pair Corralation between First Trust and Vanguard Conservative

Assuming the 90 days trading horizon First Trust is expected to generate 1.06 times less return on investment than Vanguard Conservative. In addition to that, First Trust is 1.24 times more volatile than Vanguard Conservative Income. It trades about 0.12 of its total potential returns per unit of risk. Vanguard Conservative Income is currently generating about 0.16 per unit of volatility. If you would invest  2,597  in Vanguard Conservative Income on September 5, 2024 and sell it today you would earn a total of  69.00  from holding Vanguard Conservative Income or generate 2.66% return on investment over 90 days.

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

First Trust Global  vs.  Vanguard Conservative Income

First Trust Global

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Global are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Conservative

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Conservative Income are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard Conservative is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Vanguard Conservative

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

The idea behind First Trust Global and Vanguard Conservative Income 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.