Correlation Between First Trust and Vanguard

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

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

Diversification Opportunities for First Trust and Vanguard

0.99

Correlation Coefficient

First Trust  Vanguard

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 Small and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small 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 Small are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Small has no effect on the direction of First Trust i.e., First Trust and Vanguard go up and down completely randomly.

Pair Corralation between First Trust and Vanguard

Considering the 90-day investment horizon First Trust Small is expected to under-perform the Vanguard. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Small is 1.04 times less risky than Vanguard. The etf trades about -0.13 of its potential returns per unit of risk. The Vanguard SP Small Cap is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  11,922  in Vanguard SP Small Cap on December 26, 2024 and sell it today you would lose (903.00) from holding Vanguard SP Small Cap or give up 7.57% 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 Small  vs.  Vanguard SP Small Cap

First Trust Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Small has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Vanguard SP Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP Small Cap 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

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

The idea behind First Trust Small and Vanguard SP Small Cap 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.