Correlation Between MicroSectors FANG and WisdomTree International

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Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and WisdomTree International 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 MicroSectors FANG and WisdomTree International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MicroSectors FANG Index and WisdomTree International MidCap, you can compare the effects of market volatilities on MicroSectors FANG and WisdomTree International 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 MicroSectors FANG with a short position of WisdomTree International. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and WisdomTree International.

Diversification Opportunities for MicroSectors FANG and WisdomTree International

-0.57
  Correlation Coefficient

Excellent diversification

The 3 months correlation between MicroSectors and WisdomTree is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and WisdomTree International MidCa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree International and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with WisdomTree International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree International has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and WisdomTree International go up and down completely randomly.

Pair Corralation between MicroSectors FANG and WisdomTree International

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 3.44 times more return on investment than WisdomTree International. However, MicroSectors FANG is 3.44 times more volatile than WisdomTree International MidCap. It trades about 0.18 of its potential returns per unit of risk. WisdomTree International MidCap is currently generating about -0.1 per unit of risk. If you would invest  7,499  in MicroSectors FANG Index on August 24, 2024 and sell it today you would earn a total of  790.00  from holding MicroSectors FANG Index or generate 10.53% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

MicroSectors FANG Index  vs.  WisdomTree International MidCa

 Performance 
       Timeline  
MicroSectors FANG Index 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, MicroSectors FANG displayed solid returns over the last few months and may actually be approaching a breakup point.
WisdomTree International 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days WisdomTree International MidCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, WisdomTree International is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

MicroSectors FANG and WisdomTree International Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with MicroSectors FANG and WisdomTree International

The main advantage of trading using opposite MicroSectors FANG and WisdomTree International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, WisdomTree International 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 International will offset losses from the drop in WisdomTree International's long position.
The idea behind MicroSectors FANG Index and WisdomTree International MidCap 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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