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 Materials, 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

0.26

Correlation Coefficient

Vanguard Industrials  First Trust

Modest diversification

The 3 months correlation between Vanguard and First is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Industrials Index and First Trust Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Materials 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 Materials 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 Index is expected to generate 0.78 times more return on investment than First Trust. However, Vanguard Industrials Index is 1.29 times less risky than First Trust. It trades about 0.16 of its potential returns per unit of risk. First Trust Materials is currently generating about 0.01 per unit of risk. If you would invest  24,664  in Vanguard Industrials Index on September 12, 2024 and sell it today you would earn a total of  2,292  from holding Vanguard Industrials Index or generate 9.29% return on investment over 90 days.

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

Vanguard Industrials Index  vs.  First Trust Materials

Vanguard Industrials

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Industrials Index are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal forward indicators, Vanguard Industrials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust Materials

Risk-Adjusted Performance

0 of 100

Weak

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

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 Materials 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.