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 Multi Manager and Vanguard SP Small Cap, 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
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Vanguard is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Multi Manager and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small 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 Multi Manager 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 Small 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
Given the investment horizon of 90 days First Trust Multi Manager is expected to generate 1.04 times more return on investment than Vanguard. However, First Trust is 1.04 times more volatile than Vanguard SP Small Cap. It trades about 0.06 of its potential returns per unit of risk. Vanguard SP Small Cap is currently generating about 0.05 per unit of risk. If you would invest 1,827 in First Trust Multi Manager on November 5, 2024 and sell it today you would earn a total of 344.00 from holding First Trust Multi Manager or generate 18.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.59% |
| Values | Daily Returns |
First Trust Multi Manager vs. Vanguard SP Small Cap
Performance |
| Timeline |
| First Trust Multi |
| Vanguard SP Small |
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 Exchange Traded | First Trust vs. First Trust Exchange Traded | First Trust vs. First Trust Active | First Trust vs. First Trust Expanded |
| Vanguard vs. Vanguard SP Small Cap | Vanguard vs. Vanguard SP Mid Cap | Vanguard vs. Vanguard Russell 2000 | Vanguard vs. Vanguard SP Small Cap |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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