Correlation Between Vanguard Consumer and First Trust

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Can any of the company-specific risk be diversified away by investing in both Vanguard Consumer 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 Consumer 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 Consumer Discretionary and First Trust Nasdaq, you can compare the effects of market volatilities on Vanguard Consumer 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 Consumer with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Consumer and First Trust.

Diversification Opportunities for Vanguard Consumer and First Trust

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Vanguard and First is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Consumer Discretionar and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and Vanguard Consumer 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 Consumer Discretionary 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 Nasdaq has no effect on the direction of Vanguard Consumer i.e., Vanguard Consumer and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Consumer and First Trust

Considering the 90-day investment horizon Vanguard Consumer Discretionary is expected to generate 0.67 times more return on investment than First Trust. However, Vanguard Consumer Discretionary is 1.5 times less risky than First Trust. It trades about 0.35 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about 0.08 per unit of risk. If you would invest  37,007  in Vanguard Consumer Discretionary on September 12, 2024 and sell it today you would earn a total of  2,722  from holding Vanguard Consumer Discretionary or generate 7.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Vanguard Consumer Discretionar  vs.  First Trust Nasdaq

 Performance 
       Timeline  
Vanguard Consumer 

Risk-Adjusted Performance

24 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Consumer Discretionary are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental indicators, Vanguard Consumer reported solid returns over the last few months and may actually be approaching a breakup point.
First Trust Nasdaq 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Nasdaq are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward-looking signals, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Consumer and First Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Consumer and First Trust

The main advantage of trading using opposite Vanguard Consumer and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Consumer 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.
The idea behind Vanguard Consumer Discretionary and First Trust Nasdaq pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.

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