Correlation Between Vanguard Russell and First Trust

Can any of the company-specific risk be diversified away by investing in both Vanguard Russell 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 Russell 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 Russell 2000 and First Trust Active, you can compare the effects of market volatilities on Vanguard Russell 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 Russell with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Russell and First Trust.

Diversification Opportunities for Vanguard Russell and First Trust

0.97

Correlation Coefficient

Vanguard Russell  First Trust

Almost no diversification

The 3 months correlation between Vanguard and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Russell 2000 and First Trust Active in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Active and Vanguard Russell 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 Russell 2000 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 Active has no effect on the direction of Vanguard Russell i.e., Vanguard Russell and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Russell and First Trust

Assuming the 90 days horizon Vanguard Russell is expected to generate 1.01 times less return on investment than First Trust. In addition to that, Vanguard Russell is 1.13 times more volatile than First Trust Active. It trades about 0.09 of its total potential returns per unit of risk. First Trust Active is currently generating about 0.1 per unit of volatility. If you would invest  3,026  in First Trust Active on October 21, 2024 and sell it today you would earn a total of  49.00  from holding First Trust Active or generate 1.62% return on investment over 90 days.

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

Vanguard Russell 2000  vs.  First Trust Active

Vanguard Russell 2000

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Russell 2000 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, Vanguard Russell is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Active

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard Russell and First Trust

The main advantage of trading using opposite Vanguard Russell and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Russell 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 Russell 2000 and First Trust Active 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.