Correlation Between Vanguard Value and First Trust

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

Diversification Opportunities for Vanguard Value and First Trust

0.69

Correlation Coefficient

Vanguard Value  First Trust

Poor diversification

The 3 months correlation between Vanguard and First is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and First Trust Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Capital and Vanguard Value 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 Value Index 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 Capital has no effect on the direction of Vanguard Value i.e., Vanguard Value and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Value and First Trust

Considering the 90-day investment horizon Vanguard Value is expected to generate 2.42 times less return on investment than First Trust. But when comparing it to its historical volatility, Vanguard Value Index is 1.01 times less risky than First Trust. It trades about 0.05 of its potential returns per unit of risk. First Trust Capital is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,642  in First Trust Capital on December 28, 2024 and sell it today you would earn a total of  157.00  from holding First Trust Capital or generate 5.94% return on investment over 90 days.

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

Vanguard Value Index  vs.  First Trust Capital

Vanguard Value Index

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

First Trust Capital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Capital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard Value and First Trust

The main advantage of trading using opposite Vanguard Value and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Value 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 Value Index and First Trust Capital 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.