Correlation Between Vanguard International and First Trust

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

Diversification Opportunities for Vanguard International and First Trust

-0.41

Correlation Coefficient

Vanguard International  First Trust

Very good diversification

The 3 months correlation between Vanguard and First is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard International Equity and First Trust Germany in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Germany and Vanguard International 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 International Equity 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 Germany has no effect on the direction of Vanguard International i.e., Vanguard International and First Trust go up and down completely randomly.

Pair Corralation between Vanguard International and First Trust

Assuming the 90 days trading horizon Vanguard International Equity is expected to generate 10.01 times more return on investment than First Trust. However, Vanguard International is 10.01 times more volatile than First Trust Germany. It trades about 0.13 of its potential returns per unit of risk. First Trust Germany is currently generating about 0.08 per unit of risk. If you would invest  66,262  in Vanguard International Equity on October 3, 2024 and sell it today you would earn a total of  25,588  from holding Vanguard International Equity or generate 38.62% return on investment over 90 days.

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

Vanguard International Equity  vs.  First Trust Germany

Vanguard International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard International Equity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vanguard International is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

First Trust Germany

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Vanguard International and First Trust

The main advantage of trading using opposite Vanguard International and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard International 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 International Equity and First Trust Germany 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.