Correlation Between First Trust and Vanguard
Can any of the company-specific risk be diversified away by investing in both First Trust and Vanguard 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 First Trust and Vanguard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Large and Vanguard SP 500, you can compare the effects of market volatilities on First Trust and Vanguard 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 First Trust with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Vanguard.
Diversification Opportunities for First Trust and Vanguard
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Vanguard is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Large and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and First Trust 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 First Trust Large are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of First Trust i.e., First Trust and Vanguard go up and down completely randomly.
Pair Corralation between First Trust and Vanguard
Considering the 90-day investment horizon First Trust Large is expected to under-perform the Vanguard. In addition to that, First Trust is 1.03 times more volatile than Vanguard SP 500. It trades about -0.05 of its total potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.03 per unit of volatility. If you would invest 54,390 in Vanguard SP 500 on October 22, 2024 and sell it today you would earn a total of 556.00 from holding Vanguard SP 500 or generate 1.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Large vs. Vanguard SP 500
Performance |
| Timeline |
| First Trust Large |
| Vanguard SP 500 |
First Trust and Vanguard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Vanguard
The main advantage of trading using opposite First Trust and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Vanguard 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 Vanguard will offset losses from the drop in Vanguard's long position.| First Trust vs. First Trust Large | First Trust vs. First Trust Small | First Trust vs. First Trust Mid | First Trust vs. First Trust Large |
| Vanguard vs. Vanguard Total Stock | Vanguard vs. Vanguard High Dividend | Vanguard vs. Vanguard Information Technology | Vanguard vs. Invesco QQQ Trust |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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