Correlation Between First Trust and Vanguard Short
Can any of the company-specific risk be diversified away by investing in both First Trust and Vanguard Short 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 Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Short and Vanguard Short Term Tax Exempt, you can compare the effects of market volatilities on First Trust and Vanguard Short 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 Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Vanguard Short.
Diversification Opportunities for First Trust and Vanguard Short
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Vanguard is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Short and Vanguard Short Term Tax Exempt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Short Term 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 Short are associated (or correlated) with Vanguard Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Short Term has no effect on the direction of First Trust i.e., First Trust and Vanguard Short go up and down completely randomly.
Pair Corralation between First Trust and Vanguard Short
Given the investment horizon of 90 days First Trust is expected to generate 2.73 times less return on investment than Vanguard Short. But when comparing it to its historical volatility, First Trust Short is 1.02 times less risky than Vanguard Short. It trades about 0.05 of its potential returns per unit of risk. Vanguard Short Term Tax Exempt is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 10,038 in Vanguard Short Term Tax Exempt on August 26, 2024 and sell it today you would earn a total of 42.00 from holding Vanguard Short Term Tax Exempt or generate 0.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Short vs. Vanguard Short Term Tax Exempt
Performance |
| Timeline |
| First Trust Short |
| Vanguard Short Term |
First Trust and Vanguard Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Vanguard Short
The main advantage of trading using opposite First Trust and Vanguard Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Vanguard Short 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 Short will offset losses from the drop in Vanguard Short's long position.| First Trust vs. Dimensional ETF Trust | First Trust vs. Dimensional ETF Trust | First Trust vs. Dimensional ETF Trust | First Trust vs. Dimensional Emerging Core |
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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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