Correlation Between Vanguard Financials and First Trust
Can any of the company-specific risk be diversified away by investing in both Vanguard Financials 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 Financials 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 Financials Index and First Trust Nasdaq, you can compare the effects of market volatilities on Vanguard Financials 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 Financials with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Financials and First Trust.
Diversification Opportunities for Vanguard Financials and First Trust
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and First is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index 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 Financials 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 Financials Index 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 Financials i.e., Vanguard Financials and First Trust go up and down completely randomly.
Pair Corralation between Vanguard Financials and First Trust
Considering the 90-day investment horizon Vanguard Financials is expected to generate 59.84 times less return on investment than First Trust. But when comparing it to its historical volatility, Vanguard Financials Index is 2.23 times less risky than First Trust. It trades about 0.0 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,767 in First Trust Nasdaq on September 12, 2024 and sell it today you would earn a total of 41.00 from holding First Trust Nasdaq or generate 2.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Financials Index vs. First Trust Nasdaq
Performance |
| Timeline |
| Vanguard Financials Index |
| First Trust Nasdaq |
Vanguard Financials and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Financials and First Trust
The main advantage of trading using opposite Vanguard Financials and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Financials 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 Financials vs. Vanguard Industrials Index | Vanguard Financials vs. Vanguard Consumer Discretionary | Vanguard Financials vs. Vanguard Materials Index | Vanguard Financials vs. Vanguard Health Care |
| First Trust vs. First Trust Nasdaq | First Trust vs. Global X Aging | First Trust vs. Invesco Nasdaq Biotechnology | First Trust vs. First Trust Indxx |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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