Correlation Between WisdomTree CBOE and Financial Select
Can any of the company-specific risk be diversified away by investing in both WisdomTree CBOE and Financial Select 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 CBOE and Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree CBOE SP and Financial Select Sector, you can compare the effects of market volatilities on WisdomTree CBOE and Financial Select 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 CBOE with a short position of Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree CBOE and Financial Select.
Diversification Opportunities for WisdomTree CBOE and Financial Select
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between WisdomTree and Financial is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree CBOE SP and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector and WisdomTree CBOE 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 CBOE SP are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of WisdomTree CBOE i.e., WisdomTree CBOE and Financial Select go up and down completely randomly.
Pair Corralation between WisdomTree CBOE and Financial Select
Given the investment horizon of 90 days WisdomTree CBOE is expected to generate 3.59 times less return on investment than Financial Select. But when comparing it to its historical volatility, WisdomTree CBOE SP is 2.55 times less risky than Financial Select. It trades about 0.18 of its potential returns per unit of risk. Financial Select Sector is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 4,663 in Financial Select Sector on August 26, 2024 and sell it today you would earn a total of 410.00 from holding Financial Select Sector or generate 8.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
WisdomTree CBOE SP vs. Financial Select Sector
Performance |
| Timeline |
| WisdomTree CBOE SP |
| Financial Select Sector |
WisdomTree CBOE and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree CBOE and Financial Select
The main advantage of trading using opposite WisdomTree CBOE and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree CBOE position performs unexpectedly, Financial Select 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 Financial Select will offset losses from the drop in Financial Select's long position.| WisdomTree CBOE vs. Global X SP | WisdomTree CBOE vs. First Trust BuyWrite | WisdomTree CBOE vs. Amplify CWP Enhanced | WisdomTree CBOE vs. ProShares SP MidCap |
| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial Select Sector |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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