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 Multi Manager, 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
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and First is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Small Cap and First Trust Multi Manager in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Multi 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 Multi 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 is expected to generate 1.07 times less return on investment than First Trust. In addition to that, Vanguard is 1.04 times more volatile than First Trust Multi Manager. It trades about 0.08 of its total potential returns per unit of risk. First Trust Multi Manager is currently generating about 0.09 per unit of volatility. If you would invest 1,950 in First Trust Multi Manager on August 24, 2024 and sell it today you would earn a total of 270.00 from holding First Trust Multi Manager or generate 13.85% 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 Small Cap vs. First Trust Multi Manager
Performance |
| Timeline |
| Vanguard SP Small |
| First Trust Multi |
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. First Trust Exchange Traded | First Trust vs. First Trust Exchange Traded | First Trust vs. First Trust Active | First Trust vs. First Trust Expanded |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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