Correlation Between First Trust and Vanguard Short

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

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

Diversification Opportunities for First Trust and Vanguard Short

0.91

Correlation Coefficient

First Trust  Vanguard Short

Almost no diversification

The 3 months correlation between First and Vanguard is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and Vanguard Short Term Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Short Term 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 Exchange Traded are associated (or correlated) with Vanguard Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Short Term has no effect on the direction of First Trust i.e., First Trust and Vanguard Short go up and down completely randomly.

Pair Corralation between First Trust and Vanguard Short

Given the investment horizon of 90 days First Trust Exchange Traded is expected to generate 4.33 times more return on investment than Vanguard Short. However, First Trust is 4.33 times more volatile than Vanguard Short Term Treasury. It trades about 0.18 of its potential returns per unit of risk. Vanguard Short Term Treasury is currently generating about 0.34 per unit of risk. If you would invest  1,957  in First Trust Exchange Traded on December 21, 2024 and sell it today you would earn a total of  73.10  from holding First Trust Exchange Traded or generate 3.74% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  Vanguard Short Term Treasury

First Trust Exchange

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, First Trust is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Vanguard Short Term

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Treasury are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Vanguard Short is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and Vanguard Short

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

The idea behind First Trust Exchange Traded and Vanguard Short Term Treasury 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.