Correlation Between Vanguard Small and First Trust
Can any of the company-specific risk be diversified away by investing in both Vanguard Small and First Trust 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 Vanguard Small and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Small Cap Value and First Trust Small, you can compare the effects of market volatilities on Vanguard Small and First Trust 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 Vanguard Small with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and First Trust.
Diversification Opportunities for Vanguard Small and First Trust
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and First Trust Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Small and Vanguard Small 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 Vanguard Small Cap Value are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Small has no effect on the direction of Vanguard Small i.e., Vanguard Small and First Trust go up and down completely randomly.
Pair Corralation between Vanguard Small and First Trust
Considering the 90-day investment horizon Vanguard Small Cap Value is expected to generate 0.85 times more return on investment than First Trust. However, Vanguard Small Cap Value is 1.18 times less risky than First Trust. It trades about 0.1 of its potential returns per unit of risk. First Trust Small is currently generating about 0.07 per unit of risk. If you would invest 18,100 in Vanguard Small Cap Value on September 1, 2024 and sell it today you would earn a total of 3,520 from holding Vanguard Small Cap Value or generate 19.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Value vs. First Trust Small
Performance |
| Timeline |
| Vanguard Small Cap |
| First Trust Small |
Vanguard Small and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small and First Trust
The main advantage of trading using opposite Vanguard Small and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Vanguard Small vs. Vanguard Mid Cap Value | Vanguard Small vs. Vanguard Small Cap Growth | Vanguard Small vs. Vanguard Value Index | Vanguard Small vs. Vanguard Small Cap 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.
Other Complementary Tools
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| Stocks Directory Find actively traded stocks across global markets | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like |