Correlation Between First Trust and Vanguard Industrials
Can any of the company-specific risk be diversified away by investing in both First Trust and Vanguard Industrials 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 Industrials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Exchange Traded and Vanguard Industrials Index, you can compare the effects of market volatilities on First Trust and Vanguard Industrials 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 Industrials. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Vanguard Industrials.
Diversification Opportunities for First Trust and Vanguard Industrials
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between First and Vanguard is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and Vanguard Industrials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Industrials 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 Exchange Traded are associated (or correlated) with Vanguard Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Industrials has no effect on the direction of First Trust i.e., First Trust and Vanguard Industrials go up and down completely randomly.
Pair Corralation between First Trust and Vanguard Industrials
Given the investment horizon of 90 days First Trust is expected to generate 2.41 times less return on investment than Vanguard Industrials. But when comparing it to its historical volatility, First Trust Exchange Traded is 1.06 times less risky than Vanguard Industrials. It trades about 0.06 of its potential returns per unit of risk. Vanguard Industrials Index is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 20,244 in Vanguard Industrials Index on August 26, 2024 and sell it today you would earn a total of 7,430 from holding Vanguard Industrials Index or generate 36.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Exchange Traded vs. Vanguard Industrials Index
Performance |
| Timeline |
| First Trust Exchange |
| Vanguard Industrials |
First Trust and Vanguard Industrials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Vanguard Industrials
The main advantage of trading using opposite First Trust and Vanguard Industrials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Vanguard Industrials 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 Industrials will offset losses from the drop in Vanguard Industrials' long position.| First Trust vs. Global X Clean | First Trust vs. Global X Renewable | First Trust vs. Global X Thematic | First Trust vs. Global X AgTech |
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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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