Correlation Between Vanguard Extended and First Trust
Can any of the company-specific risk be diversified away by investing in both Vanguard Extended 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 Extended 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 Extended Market and First Trust Mid, you can compare the effects of market volatilities on Vanguard Extended 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 Extended with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and First Trust.
Diversification Opportunities for Vanguard Extended and First Trust
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and First is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Market 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 Extended 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 Extended Market 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 Extended i.e., Vanguard Extended and First Trust go up and down completely randomly.
Pair Corralation between Vanguard Extended and First Trust
Considering the 90-day investment horizon Vanguard Extended Market is expected to generate 1.06 times more return on investment than First Trust. However, Vanguard Extended is 1.06 times more volatile than First Trust Mid. It trades about 0.34 of its potential returns per unit of risk. First Trust Mid is currently generating about 0.27 per unit of risk. If you would invest 15,770 in Vanguard Extended Market on April 21, 2025 and sell it today you would earn a total of 4,079 from holding Vanguard Extended Market or generate 25.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Extended Market vs. First Trust Mid
Performance |
| Timeline |
| Vanguard Extended Market |
| First Trust Mid |
Vanguard Extended and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Extended and First Trust
The main advantage of trading using opposite Vanguard Extended and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Extended 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.| Vanguard Extended vs. Vanguard Large Cap Index | Vanguard Extended vs. Vanguard Small Cap Growth | Vanguard Extended vs. Vanguard Mid Cap Index | Vanguard Extended vs. Vanguard Mid Cap Growth |
| First Trust vs. First Trust Small | First Trust vs. First Trust Large | First Trust vs. First Trust Large | First Trust vs. First Trust Large |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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