Correlation Between First Trust and Vanguard Consumer

Can any of the company-specific risk be diversified away by investing in both First Trust and Vanguard Consumer 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 First Trust and Vanguard Consumer into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Trust Energy and Vanguard Consumer Staples, you can compare the effects of market volatilities on First Trust and Vanguard Consumer 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 First Trust with a short position of Vanguard Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Vanguard Consumer.

Diversification Opportunities for First Trust and Vanguard Consumer

0.6

Correlation Coefficient

First Trust  Vanguard Consumer

Poor diversification

The 3 months correlation between First and Vanguard is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Energy and Vanguard Consumer Staples in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Consumer Staples and First Trust 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 First Trust Energy are associated (or correlated) with Vanguard Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Consumer Staples has no effect on the direction of First Trust i.e., First Trust and Vanguard Consumer go up and down completely randomly.

Pair Corralation between First Trust and Vanguard Consumer

Considering the 90-day investment horizon First Trust is expected to generate 1.18 times less return on investment than Vanguard Consumer. In addition to that, First Trust is 1.73 times more volatile than Vanguard Consumer Staples. It trades about 0.07 of its total potential returns per unit of risk. Vanguard Consumer Staples is currently generating about 0.15 per unit of volatility. If you would invest  18,038  in Vanguard Consumer Staples on February 5, 2024 and sell it today you would earn a total of  2,193  from holding Vanguard Consumer Staples or generate 12.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

First Trust Energy  vs.  Vanguard Consumer Staples

First Trust Energy

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Energy are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, First Trust displayed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Consumer Staples

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Consumer Staples are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Vanguard Consumer is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and Vanguard Consumer

The main advantage of trading using opposite First Trust and Vanguard Consumer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Vanguard Consumer 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 Vanguard Consumer will offset losses from the drop in Vanguard Consumer's long position.

The idea behind First Trust Energy and Vanguard Consumer Staples 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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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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.