Correlation Between Vanguard FTSE and First Trust

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

Diversification Opportunities for Vanguard FTSE and First Trust

0.93

Correlation Coefficient

Vanguard FTSE  First Trust

Almost no diversification

The 3 months correlation between Vanguard and First is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Europe and First Trust Eurozone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Eurozone and Vanguard FTSE 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 FTSE Europe 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 Eurozone has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and First Trust go up and down completely randomly.

Pair Corralation between Vanguard FTSE and First Trust

Considering the 90-day investment horizon Vanguard FTSE Europe is expected to generate 0.78 times more return on investment than First Trust. However, Vanguard FTSE Europe is 1.27 times less risky than First Trust. It trades about 0.04 of its potential returns per unit of risk. First Trust Eurozone is currently generating about 0.03 per unit of risk. If you would invest  6,177  in Vanguard FTSE Europe on September 12, 2024 and sell it today you would earn a total of  498.50  from holding Vanguard FTSE Europe or generate 8.07% return on investment over 90 days.

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

Vanguard FTSE Europe  vs.  First Trust Eurozone

Vanguard FTSE Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Europe has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Vanguard FTSE is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

First Trust Eurozone

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Eurozone has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard FTSE and First Trust

The main advantage of trading using opposite Vanguard FTSE and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard FTSE 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 FTSE Europe and First Trust Eurozone 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..