Correlation Between First Trust and Vanguard FTSE

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

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

Diversification Opportunities for First Trust and Vanguard FTSE

0.87

Correlation Coefficient

First Trust  Vanguard FTSE

Very poor diversification

The 3 months correlation between First and Vanguard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Emerging and Vanguard FTSE Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Emerging 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 Emerging are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Emerging has no effect on the direction of First Trust i.e., First Trust and Vanguard FTSE go up and down completely randomly.

Pair Corralation between First Trust and Vanguard FTSE

Considering the 90-day investment horizon First Trust Emerging is expected to generate 1.37 times more return on investment than Vanguard FTSE. However, First Trust is 1.37 times more volatile than Vanguard FTSE Emerging. It trades about 0.02 of its potential returns per unit of risk. Vanguard FTSE Emerging is currently generating about 0.01 per unit of risk. If you would invest  2,220  in First Trust Emerging on September 23, 2024 and sell it today you would earn a total of  6.00  from holding First Trust Emerging or generate 0.27% return on investment over 90 days.

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

First Trust Emerging  vs.  Vanguard FTSE Emerging

First Trust Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental 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 FTSE Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard FTSE 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 FTSE

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

The idea behind First Trust Emerging and Vanguard FTSE Emerging 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.