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 Small Cap and First Trust Mid, 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 Small Cap and First Trust Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mid 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 Small Cap 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 Mid 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
Given the investment horizon of 90 days Vanguard SP Small Cap is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard SP Small Cap is 1.08 times less risky than First Trust. The etf trades about -0.12 of its potential returns per unit of risk. The First Trust Mid is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 8,700 in First Trust Mid on September 12, 2024 and sell it today you would lose (189.00) from holding First Trust Mid or give up 2.17% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard SP Small Cap vs. First Trust Mid
Performance |
| Timeline |
| Vanguard SP Small |
| First Trust Mid |
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 SP Small Cap | Vanguard vs. Vanguard SP Mid Cap | Vanguard vs. Vanguard Russell 2000 | Vanguard vs. Vanguard SP Small Cap |
| First Trust vs. Vanguard Mid Cap Growth | First Trust vs. iShares Russell Mid Cap | First Trust vs. ARK Innovation ETF | First Trust vs. iShares SP Mid Cap |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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