Correlation Between Vanguard Total and First Trust

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

Diversification Opportunities for Vanguard Total and First Trust

0.73

Correlation Coefficient

Vanguard Total  First Trust

Poor diversification

The 3 months correlation between Vanguard and First is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock 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 Total 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 Total Stock 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 Total i.e., Vanguard Total and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Total and First Trust

Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 0.8 times more return on investment than First Trust. However, Vanguard Total Stock is 1.26 times less risky than First Trust. It trades about 0.1 of its potential returns per unit of risk. First Trust Active is currently generating about 0.07 per unit of risk. If you would invest  25,052  in Vanguard Total Stock on October 9, 2024 and sell it today you would earn a total of  4,089  from holding Vanguard Total Stock or generate 16.32% return on investment over 90 days.

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

Vanguard Total Stock  vs.  First Trust Active

Vanguard Total Stock

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

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 rather sound primary indicators, First Trust is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard Total and First Trust

The main advantage of trading using opposite Vanguard Total and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total 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 Total Stock 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.