Correlation Between Vanguard and First Trust
Can any of the company-specific risk be diversified away by investing in both Vanguard 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 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 SP 500 and First Trust Indxx, you can compare the effects of market volatilities on Vanguard 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 with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and First Trust.
Diversification Opportunities for Vanguard and First Trust
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and First is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx and Vanguard 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 SP 500 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 Indxx has no effect on the direction of Vanguard i.e., Vanguard and First Trust go up and down completely randomly.
Pair Corralation between Vanguard and First Trust
Assuming the 90 days trading horizon Vanguard SP 500 is expected to generate 1.35 times more return on investment than First Trust. However, Vanguard is 1.35 times more volatile than First Trust Indxx. It trades about 0.18 of its potential returns per unit of risk. First Trust Indxx is currently generating about 0.15 per unit of risk. If you would invest 11,558 in Vanguard SP 500 on August 29, 2024 and sell it today you would earn a total of 3,485 from holding Vanguard SP 500 or generate 30.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.52% |
| Values | Daily Returns |
Vanguard SP 500 vs. First Trust Indxx
Performance |
| Timeline |
| Vanguard SP 500 |
| First Trust Indxx |
Vanguard and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard and First Trust
The main advantage of trading using opposite Vanguard and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 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 vs. Vanguard FTSE Canadian | Vanguard vs. Vanguard Growth Portfolio | Vanguard vs. Vanguard SP 500 | Vanguard vs. Vanguard FTSE Canada |
| First Trust vs. First Trust Indxx | First Trust vs. First Trust Senior | First Trust vs. First Trust AlphaDEX | 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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