Correlation Between First Trust and Vanguard Utilities
Can any of the company-specific risk be diversified away by investing in both First Trust and Vanguard Utilities 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 Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Utilities and Vanguard Utilities Index, you can compare the effects of market volatilities on First Trust and Vanguard Utilities 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 Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Vanguard Utilities.
Diversification Opportunities for First Trust and Vanguard Utilities
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and Vanguard is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Utilities and Vanguard Utilities Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Utilities Index 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 Utilities are associated (or correlated) with Vanguard Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Utilities Index has no effect on the direction of First Trust i.e., First Trust and Vanguard Utilities go up and down completely randomly.
Pair Corralation between First Trust and Vanguard Utilities
Considering the 90-day investment horizon First Trust Utilities is expected to generate 0.94 times more return on investment than Vanguard Utilities. However, First Trust Utilities is 1.06 times less risky than Vanguard Utilities. It trades about 0.17 of its potential returns per unit of risk. Vanguard Utilities Index is currently generating about 0.02 per unit of risk. If you would invest 3,884 in First Trust Utilities on August 25, 2024 and sell it today you would earn a total of 157.00 from holding First Trust Utilities or generate 4.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Utilities vs. Vanguard Utilities Index
Performance |
| Timeline |
| First Trust Utilities |
| Vanguard Utilities Index |
First Trust and Vanguard Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Vanguard Utilities
The main advantage of trading using opposite First Trust and Vanguard Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Vanguard Utilities 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 Utilities will offset losses from the drop in Vanguard Utilities' long position.| First Trust vs. First Trust Consumer | First Trust vs. First Trust IndustrialsProducer | First Trust vs. First Trust Consumer | First Trust vs. First Trust Energy |
| Vanguard Utilities vs. Vanguard Consumer Staples | Vanguard Utilities vs. Vanguard Materials Index | Vanguard Utilities vs. Vanguard Communication Services | Vanguard Utilities vs. Vanguard Financials Index |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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