Correlation Between Vanguard STAR and First Trust

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

Diversification Opportunities for Vanguard STAR and First Trust

0.53

Correlation Coefficient

Vanguard STAR  First Trust

Very weak diversification

The 3 months correlation between Vanguard and First is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard STAR Funds and First Trust Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Developed and Vanguard STAR 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 STAR Funds 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 Developed has no effect on the direction of Vanguard STAR i.e., Vanguard STAR and First Trust go up and down completely randomly.

Pair Corralation between Vanguard STAR and First Trust

Assuming the 90 days trading horizon Vanguard STAR Funds is expected to under-perform the First Trust. In addition to that, Vanguard STAR is 4.53 times more volatile than First Trust Developed. It trades about -0.03 of its total potential returns per unit of risk. First Trust Developed is currently generating about 0.22 per unit of volatility. If you would invest  89,577  in First Trust Developed on September 26, 2024 and sell it today you would earn a total of  1,590  from holding First Trust Developed or generate 1.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Vanguard STAR Funds  vs.  First Trust Developed

Vanguard STAR Funds

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard STAR Funds are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Vanguard STAR is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Developed

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Developed are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic 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 STAR and First Trust

The main advantage of trading using opposite Vanguard STAR and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard STAR 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 STAR Funds and First Trust Developed 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.