Correlation Between NXG NextGen and WisdomTree SmallCap
Can any of the company-specific risk be diversified away by investing in both NXG NextGen and WisdomTree SmallCap 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 NXG NextGen and WisdomTree SmallCap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NXG NextGen Infrastructure and WisdomTree SmallCap Dividend, you can compare the effects of market volatilities on NXG NextGen and WisdomTree SmallCap 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 NXG NextGen with a short position of WisdomTree SmallCap. Check out your portfolio center. Please also check ongoing floating volatility patterns of NXG NextGen and WisdomTree SmallCap.
Diversification Opportunities for NXG NextGen and WisdomTree SmallCap
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between NXG and WisdomTree is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding NXG NextGen Infrastructure and WisdomTree SmallCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap and NXG NextGen 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 NXG NextGen Infrastructure are associated (or correlated) with WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of NXG NextGen i.e., NXG NextGen and WisdomTree SmallCap go up and down completely randomly.
Pair Corralation between NXG NextGen and WisdomTree SmallCap
Considering the 90-day investment horizon NXG NextGen Infrastructure is expected to generate 1.21 times more return on investment than WisdomTree SmallCap. However, NXG NextGen is 1.21 times more volatile than WisdomTree SmallCap Dividend. It trades about 0.17 of its potential returns per unit of risk. WisdomTree SmallCap Dividend is currently generating about 0.11 per unit of risk. If you would invest 3,839 in NXG NextGen Infrastructure on September 1, 2024 and sell it today you would earn a total of 1,505 from holding NXG NextGen Infrastructure or generate 39.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
NXG NextGen Infrastructure vs. WisdomTree SmallCap Dividend
Performance |
| Timeline |
| NXG NextGen Infrastr |
| WisdomTree SmallCap |
NXG NextGen and WisdomTree SmallCap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NXG NextGen and WisdomTree SmallCap
The main advantage of trading using opposite NXG NextGen and WisdomTree SmallCap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NXG NextGen position performs unexpectedly, WisdomTree SmallCap 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 SmallCap will offset losses from the drop in WisdomTree SmallCap's long position.| NXG NextGen vs. MFS Investment Grade | NXG NextGen vs. Invesco High Income | NXG NextGen vs. Eaton Vance National | NXG NextGen vs. Nuveen California Select |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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