Correlation Between Vanguard ESG and First Trust

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

By analyzing existing cross correlation between Vanguard ESG Corporate and First Trust Exchange Traded, you can compare the effects of market volatilities on Vanguard ESG and First Trust 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 Vanguard ESG with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard ESG and First Trust.

Diversification Opportunities for Vanguard ESG and First Trust

0.99

Correlation Coefficient

Vanguard ESG  First Trust

No risk reduction

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

Pair Corralation between Vanguard ESG and First Trust

Given the investment horizon of 90 days Vanguard ESG is expected to generate 1.08 times less return on investment than First Trust. But when comparing it to its historical volatility, Vanguard ESG Corporate is 1.05 times less risky than First Trust. It trades about 0.1 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,028  in First Trust Exchange Traded on December 29, 2024 and sell it today you would earn a total of  41.00  from holding First Trust Exchange Traded or generate 2.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Vanguard ESG Corporate  vs.  First Trust Exchange Traded

Vanguard ESG Corporate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard ESG Corporate are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Vanguard ESG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Exchange

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard ESG and First Trust

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

The idea behind Vanguard ESG Corporate and First Trust Exchange Traded 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.