Correlation Between Vanguard Growth and First Trust

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

Diversification Opportunities for Vanguard Growth and First Trust

0.84

Correlation Coefficient

Vanguard Growth  First Trust

Very poor diversification

The 3 months correlation between Vanguard and First is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Growth Index and First Trust Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Large and Vanguard Growth 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 Growth Index 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 Large has no effect on the direction of Vanguard Growth i.e., Vanguard Growth and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Growth and First Trust

Considering the 90-day investment horizon Vanguard Growth Index is expected to generate 1.02 times more return on investment than First Trust. However, Vanguard Growth is 1.02 times more volatile than First Trust Large. It trades about 0.07 of its potential returns per unit of risk. First Trust Large is currently generating about -0.01 per unit of risk. If you would invest  34,311  in Vanguard Growth Index on March 1, 2024 and sell it today you would earn a total of  1,428  from holding Vanguard Growth Index or generate 4.16% return on investment over 90 days.

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

Vanguard Growth Index  vs.  First Trust Large

Vanguard Growth Index

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Index are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Vanguard Growth is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust Large

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days First Trust Large has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard Growth and First Trust

The main advantage of trading using opposite Vanguard Growth and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Growth 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 Growth Index and First Trust Large 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.