Correlation Between First Trust and Vanguard High

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

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

Diversification Opportunities for First Trust and Vanguard High

0.81

Correlation Coefficient

First Trust  Vanguard High

Very poor diversification

The 3 months correlation between First and Vanguard is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Lunt and Vanguard High Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard High Dividend 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 Lunt are associated (or correlated) with Vanguard High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard High Dividend has no effect on the direction of First Trust i.e., First Trust and Vanguard High go up and down completely randomly.

Pair Corralation between First Trust and Vanguard High

Given the investment horizon of 90 days First Trust Lunt is expected to generate 1.21 times more return on investment than Vanguard High. However, First Trust is 1.21 times more volatile than Vanguard High Dividend. It trades about 0.13 of its potential returns per unit of risk. Vanguard High Dividend is currently generating about 0.04 per unit of risk. If you would invest  3,093  in First Trust Lunt on September 25, 2024 and sell it today you would earn a total of  236.86  from holding First Trust Lunt or generate 7.66% return on investment over 90 days.

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

First Trust Lunt  vs.  Vanguard High Dividend

First Trust Lunt

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Lunt are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard High Dividend

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard High Dividend are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard High is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Vanguard High

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

The idea behind First Trust Lunt and Vanguard High Dividend 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.