Correlation Between WisdomTree SmallCap and Dow Jones
Can any of the company-specific risk be diversified away by investing in both WisdomTree SmallCap and Dow Jones 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 Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree SmallCap Quality and Dow Jones Industrial, you can compare the effects of market volatilities on WisdomTree SmallCap and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree SmallCap and Dow Jones.
Diversification Opportunities for WisdomTree SmallCap and Dow Jones
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between WisdomTree and Dow is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Quality and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Quality are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and Dow Jones go up and down completely randomly.
Pair Corralation between WisdomTree SmallCap and Dow Jones
Given the investment horizon of 90 days WisdomTree SmallCap Quality is expected to generate 1.7 times more return on investment than Dow Jones. However, WisdomTree SmallCap is 1.7 times more volatile than Dow Jones Industrial. It trades about 0.06 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.08 per unit of risk. If you would invest 3,948 in WisdomTree SmallCap Quality on August 30, 2024 and sell it today you would earn a total of 1,653 from holding WisdomTree SmallCap Quality or generate 41.87% 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 Quality vs. Dow Jones Industrial
Performance |
| Timeline |
WisdomTree SmallCap and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
WisdomTree SmallCap Quality
Pair trading matchups for WisdomTree SmallCap
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with WisdomTree SmallCap and Dow Jones
The main advantage of trading using opposite WisdomTree SmallCap and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree SmallCap position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| WisdomTree SmallCap vs. WisdomTree Emerging Markets | WisdomTree SmallCap vs. WisdomTree Interest Rate | WisdomTree SmallCap vs. WisdomTree Japan Hedged | WisdomTree SmallCap vs. WisdomTree Interest Rate |
| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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