Correlation Between Vanguard International and First Trust
Can any of the company-specific risk be diversified away by investing in both Vanguard International 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 International 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 International Dividend and First Trust International, you can compare the effects of market volatilities on Vanguard International 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 International with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard International and First Trust.
Diversification Opportunities for Vanguard International 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 International Dividen and First Trust International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust International and Vanguard International 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 International Dividend 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 International has no effect on the direction of Vanguard International i.e., Vanguard International and First Trust go up and down completely randomly.
Pair Corralation between Vanguard International and First Trust
Given the investment horizon of 90 days Vanguard International Dividend is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard International Dividend is 1.04 times less risky than First Trust. The etf trades about -0.11 of its potential returns per unit of risk. The First Trust International is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 3,665 in First Trust International on August 28, 2024 and sell it today you would lose (145.00) from holding First Trust International or give up 3.96% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard International Dividen vs. First Trust International
Performance |
| Timeline |
| Vanguard International |
| First Trust International |
Vanguard International and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard International and First Trust
The main advantage of trading using opposite Vanguard International and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard International 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 International Dividend and First Trust International 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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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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