Correlation Between WisdomTree SmallCap and WisdomTree Earnings
Can any of the company-specific risk be diversified away by investing in both WisdomTree SmallCap and WisdomTree Earnings 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 WisdomTree SmallCap and WisdomTree Earnings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree SmallCap Dividend and WisdomTree Earnings 500, you can compare the effects of market volatilities on WisdomTree SmallCap and WisdomTree Earnings 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 WisdomTree SmallCap with a short position of WisdomTree Earnings. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree SmallCap and WisdomTree Earnings.
Diversification Opportunities for WisdomTree SmallCap and WisdomTree Earnings
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between WisdomTree and WisdomTree is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Dividend and WisdomTree Earnings 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Earnings 500 and WisdomTree SmallCap 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 WisdomTree SmallCap Dividend are associated (or correlated) with WisdomTree Earnings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Earnings 500 has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and WisdomTree Earnings go up and down completely randomly.
Pair Corralation between WisdomTree SmallCap and WisdomTree Earnings
Considering the 90-day investment horizon WisdomTree SmallCap is expected to generate 1.31 times less return on investment than WisdomTree Earnings. In addition to that, WisdomTree SmallCap is 1.58 times more volatile than WisdomTree Earnings 500. It trades about 0.06 of its total potential returns per unit of risk. WisdomTree Earnings 500 is currently generating about 0.11 per unit of volatility. If you would invest 4,104 in WisdomTree Earnings 500 on August 30, 2024 and sell it today you would earn a total of 2,225 from holding WisdomTree Earnings 500 or generate 54.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
WisdomTree SmallCap Dividend vs. WisdomTree Earnings 500
Performance |
| Timeline |
| WisdomTree SmallCap |
| WisdomTree Earnings 500 |
WisdomTree SmallCap and WisdomTree Earnings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree SmallCap and WisdomTree Earnings
The main advantage of trading using opposite WisdomTree SmallCap and WisdomTree Earnings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree SmallCap position performs unexpectedly, WisdomTree Earnings 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 WisdomTree Earnings will offset losses from the drop in WisdomTree Earnings' long position.The idea behind WisdomTree SmallCap Dividend and WisdomTree Earnings 500 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.
| WisdomTree Earnings vs. WisdomTree SmallCap Earnings | WisdomTree Earnings vs. Invesco SP 500 | WisdomTree Earnings vs. WisdomTree Total Dividend | WisdomTree Earnings vs. WisdomTree MidCap Earnings |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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