Correlation Between Vanguard High and First Trust

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

Diversification Opportunities for Vanguard High and First Trust

0.87

Correlation Coefficient

Vanguard High  First Trust

Very poor diversification

The 3 months correlation between Vanguard and First is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard High Dividend 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 High 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 High Dividend 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 High i.e., Vanguard High and First Trust go up and down completely randomly.

Pair Corralation between Vanguard High and First Trust

Considering the 90-day investment horizon Vanguard High Dividend is expected to generate 1.26 times more return on investment than First Trust. However, Vanguard High is 1.26 times more volatile than First Trust Capital. It trades about -0.19 of its potential returns per unit of risk. First Trust Capital is currently generating about -0.26 per unit of risk. If you would invest  13,086  in Vanguard High Dividend on September 21, 2024 and sell it today you would lose (418.00) from holding Vanguard High Dividend or give up 3.19% of portfolio value over 90 days.

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

Vanguard High Dividend  vs.  First Trust Capital

Vanguard High Dividend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard High Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard High is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

First Trust Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard High and First Trust

The main advantage of trading using opposite Vanguard High and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard High 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 High Dividend 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.