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 Long, 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

-0.46

Correlation Coefficient

Vanguard Value  First Trust

Very good diversification

The 3 months correlation between Vanguard and First is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and First Trust Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Long 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 Long 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 Index is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Value Index is 1.06 times less risky than First Trust. The etf trades about -0.19 of its potential returns per unit of risk. The First Trust Long is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,096  in First Trust Long on September 19, 2024 and sell it today you would earn a total of  24.00  from holding First Trust Long or generate 1.15% return on investment over 90 days.

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

Vanguard Value Index  vs.  First Trust Long

Vanguard Value Index

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Vanguard Value Index has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Long

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Long has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Trust is not utilizing all of its potentials. The newest 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 Long 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..