Correlation Between Vanguard Extended and First Trust

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

Diversification Opportunities for Vanguard Extended and First Trust

0.84

Correlation Coefficient

Vanguard Extended  First Trust

Very poor diversification

The 3 months correlation between Vanguard and First is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Market 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 Extended 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 Extended Market 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 Extended i.e., Vanguard Extended and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Extended and First Trust

Considering the 90-day investment horizon Vanguard Extended Market is expected to generate 1.1 times more return on investment than First Trust. However, Vanguard Extended is 1.1 times more volatile than First Trust Active. It trades about 0.08 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  16,575  in Vanguard Extended Market on October 9, 2024 and sell it today you would earn a total of  2,901  from holding Vanguard Extended Market or generate 17.5% return on investment over 90 days.

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

Vanguard Extended Market  vs.  First Trust Active

Vanguard Extended Market

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Market are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard Extended may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Extended and First Trust

The main advantage of trading using opposite Vanguard Extended and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Extended 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 Extended Market 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.