diversifiable risk of combining First Trust and Vanguard Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Multi Manager and Vanguard Small Cap Index, you can compare the effects of market volatilities on First Trust and Vanguard Small 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 Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Vanguard Small.
Diversification Opportunities for First Trust and Vanguard Small
Pair Corralation between First Trust and Vanguard Small
Given the investment horizon of 90 days First Trust Multi Manager is expected to generate 1.05 times more return on investment than Vanguard Small. However, First Trust is 1.05 times more volatile than Vanguard Small Cap Index. It trades about 0.11 of its potential returns per unit of risk. Vanguard Small Cap Index is currently generating about 0.07 per unit of risk. If you would invest 1,589 in First Trust Multi Manager on November 24, 2023 and sell it today you would earn a total of 257.00 from holding First Trust Multi Manager or generate 16.17% return on investment over 90 days.
First Trust Multi-Manager vs. Vanguard Small-Cap Index
First Trust and Vanguard Small Volatility Contrast
Pair Trading with First Trust and Vanguard SmallThe main advantage of trading using opposite First Trust and Vanguard Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Vanguard Small 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 Small will offset losses from the drop in Vanguard Small's long position. The idea behind First Trust Multi Manager and Vanguard Small Cap Index 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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.
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