Correlation Between Vanguard Industrials and First Trust

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

Diversification Opportunities for Vanguard Industrials and First Trust

0.99

Correlation Coefficient

Vanguard Industrials  First Trust

No risk reduction

The 3 months correlation between Vanguard and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Industrials Index and First Trust IndustrialsProduce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Industri and Vanguard Industrials 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 Industrials 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 Industri has no effect on the direction of Vanguard Industrials i.e., Vanguard Industrials and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Industrials and First Trust

Considering the 90-day investment horizon Vanguard Industrials is expected to generate 1.18 times less return on investment than First Trust. But when comparing it to its historical volatility, Vanguard Industrials Index is 1.1 times less risky than First Trust. It trades about 0.23 of its potential returns per unit of risk. First Trust IndustrialsProducer is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  7,134  in First Trust IndustrialsProducer on September 2, 2024 and sell it today you would earn a total of  1,179  from holding First Trust IndustrialsProducer or generate 16.53% return on investment over 90 days.

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

Vanguard Industrials Index  vs.  First Trust IndustrialsProduce

Vanguard Industrials

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Industrials Index are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal forward indicators, Vanguard Industrials unveiled solid returns over the last few months and may actually be approaching a breakup point.

First Trust Industri

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust IndustrialsProducer are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, First Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Industrials and First Trust

The main advantage of trading using opposite Vanguard Industrials and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Industrials 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 Industrials Index and First Trust IndustrialsProducer 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.