Correlation Between First Trust and Vanguard Extended

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

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

Diversification Opportunities for First Trust and Vanguard Extended

0.99

Correlation Coefficient

First Trust  Vanguard Extended

No risk reduction

The 3 months correlation between First and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and Vanguard Extended Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Extended Market 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 Dorsey are associated (or correlated) with Vanguard Extended. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Extended Market has no effect on the direction of First Trust i.e., First Trust and Vanguard Extended go up and down completely randomly.

Pair Corralation between First Trust and Vanguard Extended

Allowing for the 90-day total investment horizon First Trust Dorsey is expected to generate 0.94 times more return on investment than Vanguard Extended. However, First Trust Dorsey is 1.07 times less risky than Vanguard Extended. It trades about -0.1 of its potential returns per unit of risk. Vanguard Extended Market is currently generating about -0.11 per unit of risk. If you would invest  5,925  in First Trust Dorsey on December 29, 2024 and sell it today you would lose (447.00) from holding First Trust Dorsey or give up 7.54% of portfolio value over 90 days.

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

First Trust Dorsey  vs.  Vanguard Extended Market

First Trust Dorsey

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Dorsey has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Vanguard Extended Market

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Extended Market has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with First Trust and Vanguard Extended

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

The idea behind First Trust Dorsey and Vanguard Extended Market 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.