Correlation Between Vanguard Intermediate and First Trust

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

Diversification Opportunities for Vanguard Intermediate and First Trust

0.64

Correlation Coefficient

Vanguard Intermediate  First Trust

Poor diversification

The 3 months correlation between Vanguard and First is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Intermediate Term Tre and First Trust Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Low and Vanguard Intermediate 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 Intermediate Term Treasury 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 Low has no effect on the direction of Vanguard Intermediate i.e., Vanguard Intermediate and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Intermediate and First Trust

Given the investment horizon of 90 days Vanguard Intermediate Term Treasury is expected to under-perform the First Trust. In addition to that, Vanguard Intermediate is 1.55 times more volatile than First Trust Low. It trades about -0.19 of its total potential returns per unit of risk. First Trust Low is currently generating about -0.1 per unit of volatility. If you would invest  4,792  in First Trust Low on February 2, 2024 and sell it today you would lose (23.00) from holding First Trust Low or give up 0.48% of portfolio value over 90 days.

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

Vanguard Intermediate Term Tre  vs.  First Trust Low

Vanguard Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Intermediate Term Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Vanguard Intermediate is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

First Trust Low

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Low has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, First Trust is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Intermediate and First Trust

The main advantage of trading using opposite Vanguard Intermediate and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Intermediate 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 Intermediate Term Treasury and First Trust Low 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.