Correlation Between WisdomTree SmallCap and SPDR SP
Can any of the company-specific risk be diversified away by investing in both WisdomTree SmallCap and SPDR SP 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 SPDR SP 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 SPDR SP 600, you can compare the effects of market volatilities on WisdomTree SmallCap and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree SmallCap and SPDR SP.
Diversification Opportunities for WisdomTree SmallCap and SPDR SP
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between WisdomTree and SPDR is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Dividend and SPDR SP 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 600 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 600 has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and SPDR SP go up and down completely randomly.
Pair Corralation between WisdomTree SmallCap and SPDR SP
Considering the 90-day investment horizon WisdomTree SmallCap is expected to generate 1.02 times less return on investment than SPDR SP. In addition to that, WisdomTree SmallCap is 1.08 times more volatile than SPDR SP 600. It trades about 0.13 of its total potential returns per unit of risk. SPDR SP 600 is currently generating about 0.15 per unit of volatility. If you would invest 8,750 in SPDR SP 600 on November 5, 2024 and sell it today you would earn a total of 228.00 from holding SPDR SP 600 or generate 2.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 94.74% |
| Values | Daily Returns |
WisdomTree SmallCap Dividend vs. SPDR SP 600
Performance |
| Timeline |
| WisdomTree SmallCap |
| SPDR SP 600 |
WisdomTree SmallCap and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree SmallCap and SPDR SP
The main advantage of trading using opposite WisdomTree SmallCap and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree SmallCap position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.The idea behind WisdomTree SmallCap Dividend and SPDR SP 600 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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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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