Correlation Between Vanguard Mortgage and First Trust

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

Diversification Opportunities for Vanguard Mortgage and First Trust

0.87

Correlation Coefficient

Vanguard Mortgage  First Trust

Very poor diversification

The 3 months correlation between Vanguard and First is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mortgage Backed Secur and First Trust Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Low and Vanguard Mortgage 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 Mortgage Backed Securities 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 Low has no effect on the direction of Vanguard Mortgage i.e., Vanguard Mortgage and First Trust go up and down completely randomly.

Pair Corralation between Vanguard Mortgage and First Trust

Given the investment horizon of 90 days Vanguard Mortgage is expected to generate 2.03 times less return on investment than First Trust. In addition to that, Vanguard Mortgage is 2.32 times more volatile than First Trust Low. It trades about 0.04 of its total potential returns per unit of risk. First Trust Low is currently generating about 0.19 per unit of volatility. If you would invest  4,841  in First Trust Low on April 25, 2025 and sell it today you would earn a total of  79.00  from holding First Trust Low or generate 1.63% return on investment over 90 days.

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

Vanguard Mortgage Backed Secur  vs.  First Trust Low

Vanguard Mortgage

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mortgage Backed Securities are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Vanguard Mortgage is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

First Trust Low

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Low are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, First Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Mortgage and First Trust

The main advantage of trading using opposite Vanguard Mortgage and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Mortgage 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 Mortgage Backed Securities and First Trust Low 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.