Correlation Between First Trust and Vanguard Small

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Can any of the company-specific risk be diversified away by investing in both First Trust and Vanguard Small 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 Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Mid and Vanguard Small Cap Growth, you can compare the effects of market volatilities on First Trust and Vanguard Small 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 Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Vanguard Small.

Diversification Opportunities for First Trust and Vanguard Small

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between First and Vanguard is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Mid and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Mid are associated (or correlated) with Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of First Trust i.e., First Trust and Vanguard Small go up and down completely randomly.

Pair Corralation between First Trust and Vanguard Small

Considering the 90-day investment horizon First Trust is expected to generate 1.66 times less return on investment than Vanguard Small. In addition to that, First Trust is 1.03 times more volatile than Vanguard Small Cap Growth. It trades about 0.06 of its total potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about 0.11 per unit of volatility. If you would invest  25,186  in Vanguard Small Cap Growth on August 24, 2024 and sell it today you would earn a total of  4,075  from holding Vanguard Small Cap Growth or generate 16.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.21%
ValuesDaily Returns

First Trust Mid  vs.  Vanguard Small Cap Growth

 Performance 
       Timeline  
First Trust Mid 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Mid are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, First Trust is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.
Vanguard Small Cap 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

First Trust and Vanguard Small Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First Trust and Vanguard Small

The main advantage of trading using opposite First Trust and Vanguard Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Vanguard Small 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 Small will offset losses from the drop in Vanguard Small's long position.
The idea behind First Trust Mid and Vanguard Small Cap Growth 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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