Correlation Between Vanguard Conservative and First Trust

Can any of the company-specific risk be diversified away by investing in both Vanguard Conservative 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 Conservative 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 Conservative Income and First Trust Global, you can compare the effects of market volatilities on Vanguard Conservative 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 Conservative with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Conservative and First Trust.

Diversification Opportunities for Vanguard Conservative and First Trust

0.84

Correlation Coefficient

Vanguard Conservative  First Trust

Very poor diversification

The 3 months correlation between Vanguard and First is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Conservative Income and First Trust Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Global and Vanguard Conservative 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 Conservative Income 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 Global has no effect on the direction of Vanguard Conservative i.e., Vanguard Conservative and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Conservative and First Trust

Assuming the 90 days trading horizon Vanguard Conservative is expected to generate 1.5 times less return on investment than First Trust. But when comparing it to its historical volatility, Vanguard Conservative Income is 1.14 times less risky than First Trust. It trades about 0.05 of its potential returns per unit of risk. First Trust Global is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,755  in First Trust Global on December 2, 2024 and sell it today you would earn a total of  24.00  from holding First Trust Global or generate 1.37% return on investment over 90 days.

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

Vanguard Conservative Income  vs.  First Trust Global

Vanguard Conservative

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Conservative Income are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard Conservative is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Trust Global

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Global are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Conservative and First Trust

The main advantage of trading using opposite Vanguard Conservative and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Conservative 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 Conservative Income and First Trust Global 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.