Correlation Between Vanguard Value and First Trust
Can any of the company-specific risk be diversified away by investing in both Vanguard Value 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 Value 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 Value Factor and First Trust Dorsey, you can compare the effects of market volatilities on Vanguard Value 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 Value with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and First Trust.
Diversification Opportunities for Vanguard Value and First Trust
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and First is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Factor and First Trust Dorsey in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dorsey and Vanguard Value 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 Value Factor 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 Dorsey has no effect on the direction of Vanguard Value i.e., Vanguard Value and First Trust go up and down completely randomly.
Pair Corralation between Vanguard Value and First Trust
Given the investment horizon of 90 days Vanguard Value Factor is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Value Factor is 1.26 times less risky than First Trust. The etf trades about -0.28 of its potential returns per unit of risk. The First Trust Dorsey is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest 6,243 in First Trust Dorsey on October 7, 2024 and sell it today you would lose (276.00) from holding First Trust Dorsey or give up 4.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Value Factor vs. First Trust Dorsey
Performance |
| Timeline |
| Vanguard Value Factor |
| First Trust Dorsey |
Vanguard Value and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Value and First Trust
The main advantage of trading using opposite Vanguard Value and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Value 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 Value vs. Vanguard Quality Factor | Vanguard Value vs. Vanguard Momentum Factor | Vanguard Value vs. Vanguard Multifactor | Vanguard Value vs. Vanguard Minimum Volatility |
| First Trust vs. First Trust Dorsey | First Trust vs. Invesco DWA Momentum | First Trust vs. First Trust Capital | First Trust vs. First Trust Large |
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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