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 Cloud, 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
0.97 | 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 SP 500 and First Trust Cloud in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Cloud 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 Cloud 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 is expected to generate 1.66 times less return on investment than First Trust. But when comparing it to its historical volatility, Vanguard SP 500 is 1.69 times less risky than First Trust. It trades about 0.17 of its potential returns per unit of risk. First Trust Cloud is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 2,226 in First Trust Cloud on September 3, 2024 and sell it today you would earn a total of 786.00 from holding First Trust Cloud or generate 35.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard SP 500 vs. First Trust Cloud
Performance |
| Timeline |
| Vanguard SP 500 |
| First Trust Cloud |
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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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