Correlation Between Vanguard Consumer and First Trust

Can any of the company-specific risk be diversified away by investing in both Vanguard Consumer 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 Consumer 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 Consumer Staples and First Trust Water, you can compare the effects of market volatilities on Vanguard Consumer 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 Consumer with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Consumer and First Trust.

Diversification Opportunities for Vanguard Consumer and First Trust

0.88

Correlation Coefficient

Vanguard Consumer  First Trust

Very poor diversification

The 3 months correlation between Vanguard and First is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Consumer Staples and First Trust Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Water and Vanguard Consumer 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 Consumer Staples 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 Water has no effect on the direction of Vanguard Consumer i.e., Vanguard Consumer and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Consumer and First Trust

Considering the 90-day investment horizon Vanguard Consumer is expected to generate 2.16 times less return on investment than First Trust. But when comparing it to its historical volatility, Vanguard Consumer Staples is 1.39 times less risky than First Trust. It trades about 0.28 of its potential returns per unit of risk. First Trust Water is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  9,825  in First Trust Water on February 22, 2024 and sell it today you would earn a total of  795.00  from holding First Trust Water or generate 8.09% return on investment over 90 days.

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

Vanguard Consumer Staples  vs.  First Trust Water

Vanguard Consumer Staples

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Consumer Staples are ranked lower than 12 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust Water

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Water are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Vanguard Consumer and First Trust

The main advantage of trading using opposite Vanguard Consumer and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Consumer 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 Consumer Staples and First Trust Water 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.