Correlation Between Vanguard Health and First Trust

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

Diversification Opportunities for Vanguard Health and First Trust

0.86

Correlation Coefficient

Vanguard Health  First Trust

Very poor diversification

The 3 months correlation between Vanguard and First is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Health Care and First Trust Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Health and Vanguard Health 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 Health Care 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 Health has no effect on the direction of Vanguard Health i.e., Vanguard Health and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Health and First Trust

Considering the 90-day investment horizon Vanguard Health Care is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Health Care is 1.25 times less risky than First Trust. The etf trades about -0.16 of its potential returns per unit of risk. The First Trust Health is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  10,663  in First Trust Health on February 2, 2024 and sell it today you would lose (263.00) from holding First Trust Health or give up 2.47% of portfolio value over 90 days.

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

Vanguard Health Care  vs.  First Trust Health

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Trust Health

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Health are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Vanguard Health and First Trust

The main advantage of trading using opposite Vanguard Health and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Health 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 Health Care and First Trust Health 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.