Correlation Between Vanguard Short and First Trust

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

Diversification Opportunities for Vanguard Short and First Trust

0.93

Correlation Coefficient

Vanguard Short  First Trust

Almost no diversification

The 3 months correlation between Vanguard and First is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Treasury 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 Short 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 Short 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 Exchange has no effect on the direction of Vanguard Short i.e., Vanguard Short and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Short and First Trust

Given the investment horizon of 90 days Vanguard Short Term Treasury is expected to generate 0.25 times more return on investment than First Trust. However, Vanguard Short Term Treasury is 4.04 times less risky than First Trust. It trades about 0.01 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about -0.08 per unit of risk. If you would invest  5,830  in Vanguard Short Term Treasury on September 12, 2024 and sell it today you would earn a total of  3.00  from holding Vanguard Short Term Treasury or generate 0.05% return on investment over 90 days.

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

Vanguard Short Term Treasury  vs.  First Trust Exchange Traded

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Short Term Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Vanguard Short is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

First Trust Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Trust is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard Short and First Trust

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

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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.