Correlation Between First Trust and Vanguard Industrials

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

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

Diversification Opportunities for First Trust and Vanguard Industrials

0.95

Correlation Coefficient

First Trust  Vanguard Industrials

Almost no diversification

The 3 months correlation between First and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Trust IndustrialsProduce and Vanguard Industrials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Industrials 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 IndustrialsProducer are associated (or correlated) with Vanguard Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Industrials has no effect on the direction of First Trust i.e., First Trust and Vanguard Industrials go up and down completely randomly.

Pair Corralation between First Trust and Vanguard Industrials

Considering the 90-day investment horizon First Trust IndustrialsProducer is expected to under-perform the Vanguard Industrials. In addition to that, First Trust is 1.14 times more volatile than Vanguard Industrials Index. It trades about -0.1 of its total potential returns per unit of risk. Vanguard Industrials Index is currently generating about -0.04 per unit of volatility. If you would invest  25,329  in Vanguard Industrials Index on December 29, 2024 and sell it today you would lose (710.00) from holding Vanguard Industrials Index or give up 2.8% 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 IndustrialsProduce  vs.  Vanguard Industrials Index

First Trust Industri

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust IndustrialsProducer has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Vanguard Industrials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Industrials Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Vanguard Industrials is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Trust and Vanguard Industrials

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

The idea behind First Trust IndustrialsProducer and Vanguard Industrials Index 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.