Correlation Between Vanguard Municipal and First Trust

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

Diversification Opportunities for Vanguard Municipal and First Trust

0.0

Correlation Coefficient

Vanguard Municipal  First Trust

Pay attention - limited upside

The 3 months correlation between Vanguard and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Municipal Bond and First Trust Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Short and Vanguard Municipal 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 Municipal Bond 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 Short has no effect on the direction of Vanguard Municipal i.e., Vanguard Municipal and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Municipal and First Trust

If you would invest  1,772  in First Trust Short on December 29, 2024 and sell it today you would earn a total of  8.00  from holding First Trust Short or generate 0.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Vanguard Municipal Bond  vs.  First Trust Short

Vanguard Municipal Bond

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Municipal Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Short

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Short are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Municipal and First Trust

The main advantage of trading using opposite Vanguard Municipal and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Municipal 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 Municipal Bond and First Trust Short 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.