Correlation Between Vanguard Utilities and First Trust

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

Diversification Opportunities for Vanguard Utilities and First Trust

0.52

Correlation Coefficient

Vanguard Utilities  First Trust

Very weak diversification

The 3 months correlation between Vanguard and First is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Utilities Index and First Trust EIP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust EIP and Vanguard Utilities 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 Utilities 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 EIP has no effect on the direction of Vanguard Utilities i.e., Vanguard Utilities and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Utilities and First Trust

Considering the 90-day investment horizon Vanguard Utilities is expected to generate 1.27 times less return on investment than First Trust. In addition to that, Vanguard Utilities is 1.38 times more volatile than First Trust EIP. It trades about 0.15 of its total potential returns per unit of risk. First Trust EIP is currently generating about 0.26 per unit of volatility. If you would invest  2,775  in First Trust EIP on August 30, 2024 and sell it today you would earn a total of  337.00  from holding First Trust EIP or generate 12.14% return on investment over 90 days.

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

Vanguard Utilities Index  vs.  First Trust EIP

Vanguard Utilities Index

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Utilities Index are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Vanguard Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

First Trust EIP

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust EIP are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Utilities and First Trust

The main advantage of trading using opposite Vanguard Utilities and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Utilities 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 Utilities Index and First Trust EIP 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.