Correlation Between Vanguard Mega and First Trust

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

Diversification Opportunities for Vanguard Mega and First Trust

0.94

Correlation Coefficient

Vanguard Mega  First Trust

Almost no diversification

The 3 months correlation between Vanguard and First is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mega Cap and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange and Vanguard Mega 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 Mega Cap 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 Exchange has no effect on the direction of Vanguard Mega i.e., Vanguard Mega and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Mega and First Trust

Considering the 90-day investment horizon Vanguard Mega Cap is expected to generate 1.1 times more return on investment than First Trust. However, Vanguard Mega is 1.1 times more volatile than First Trust Exchange Traded. It trades about 0.19 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about 0.17 per unit of risk. If you would invest  31,369  in Vanguard Mega Cap on September 12, 2024 and sell it today you would earn a total of  3,656  from holding Vanguard Mega Cap or generate 11.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard Mega Cap  vs.  First Trust Exchange Traded

Vanguard Mega Cap

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mega Cap are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile technical and fundamental indicators, Vanguard Mega may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust Exchange

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Mega and First Trust

The main advantage of trading using opposite Vanguard Mega and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Mega 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 Mega Cap and First Trust Exchange Traded 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.