Correlation Between Vanguard Consumer and First Trust

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

Diversification Opportunities for Vanguard Consumer and First Trust

0.41

Correlation Coefficient

Vanguard Consumer  First Trust

Very weak diversification

The 3 months correlation between Vanguard and First is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Consumer Discretionar and First Trust NYSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NYSE and Vanguard Consumer 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 Consumer Discretionary 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 NYSE has no effect on the direction of Vanguard Consumer i.e., Vanguard Consumer and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Consumer and First Trust

Considering the 90-day investment horizon Vanguard Consumer Discretionary is expected to under-perform the First Trust. In addition to that, Vanguard Consumer is 1.29 times more volatile than First Trust NYSE. It trades about -0.14 of its total potential returns per unit of risk. First Trust NYSE is currently generating about 0.0 per unit of volatility. If you would invest  16,718  in First Trust NYSE on December 27, 2024 and sell it today you would lose (46.00) from holding First Trust NYSE or give up 0.28% of portfolio value over 90 days.

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

Vanguard Consumer Discretionar  vs.  First Trust NYSE

Vanguard Consumer

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Consumer Discretionary has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Etf's fundamental indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the ETF retail investors.

First Trust NYSE

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust NYSE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, First Trust is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Consumer and First Trust

The main advantage of trading using opposite Vanguard Consumer and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Consumer 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 Consumer Discretionary and First Trust NYSE 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.

Check out your portfolio center.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.