Correlation Between Vanguard Mid and First Trust

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

Diversification Opportunities for Vanguard Mid and First Trust

0.99

Correlation Coefficient

Vanguard Mid  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 Mid Cap Index and First Trust Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mid and Vanguard Mid 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 Mid Cap 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 Mid has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Mid and First Trust

Allowing for the 90-day total investment horizon Vanguard Mid Cap Index is expected to generate 0.8 times more return on investment than First Trust. However, Vanguard Mid Cap Index is 1.25 times less risky than First Trust. It trades about -0.16 of its potential returns per unit of risk. First Trust Mid is currently generating about -0.19 per unit of risk. If you would invest  24,824  in Vanguard Mid Cap Index on January 31, 2024 and sell it today you would lose (639.00) from holding Vanguard Mid Cap Index or give up 2.57% of portfolio value over 90 days.

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

Vanguard Mid Cap Index  vs.  First Trust Mid

Vanguard Mid Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard Mid is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

First Trust Mid

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Mid are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Vanguard Mid and First Trust

The main advantage of trading using opposite Vanguard Mid and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Mid 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 Mid Cap Index and First Trust Mid 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.