Correlation Between Vanguard Mid and First Trust

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

Diversification Opportunities for Vanguard Mid and First Trust

0.95

Correlation Coefficient

Vanguard Mid  First Trust

Almost no diversification

The 3 months correlation between Vanguard and First is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Value and First Trust RBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RBA and Vanguard Mid 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 Mid Cap Value 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 RBA has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Mid and First Trust

Considering the 90-day investment horizon Vanguard Mid Cap Value is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Mid Cap Value is 1.42 times less risky than First Trust. The etf trades about -0.01 of its potential returns per unit of risk. The First Trust RBA is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,760  in First Trust RBA on December 28, 2024 and sell it today you would lose (13.00) from holding First Trust RBA or give up 0.35% of portfolio value over 90 days.

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

Vanguard Mid Cap Value  vs.  First Trust RBA

Vanguard Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Mid Cap Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard Mid is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust RBA

Risk-Adjusted Performance

Weak

Over the last 90 days First Trust RBA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard Mid and First Trust

The main advantage of trading using opposite Vanguard Mid and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Mid 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 Mid Cap Value and First Trust RBA 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.