Correlation Between Vanguard International and WisdomTree International
Can any of the company-specific risk be diversified away by investing in both Vanguard International 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 Vanguard International and WisdomTree International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard International High and WisdomTree International High, you can compare the effects of market volatilities on Vanguard International 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 Vanguard International with a short position of WisdomTree International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard International and WisdomTree International.
Diversification Opportunities for Vanguard International and WisdomTree International
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and WisdomTree is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard International High and WisdomTree International High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree International and Vanguard International 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 Vanguard International High 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 Vanguard International i.e., Vanguard International and WisdomTree International go up and down completely randomly.
Pair Corralation between Vanguard International and WisdomTree International
Given the investment horizon of 90 days Vanguard International High is expected to generate 0.95 times more return on investment than WisdomTree International. However, Vanguard International High is 1.06 times less risky than WisdomTree International. It trades about 0.07 of its potential returns per unit of risk. WisdomTree International High is currently generating about 0.05 per unit of risk. If you would invest 5,505 in Vanguard International High on August 24, 2024 and sell it today you would earn a total of 1,502 from holding Vanguard International High or generate 27.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard International High vs. WisdomTree International High
Performance |
| Timeline |
| Vanguard International |
| WisdomTree International |
Vanguard International and WisdomTree International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard International and WisdomTree International
The main advantage of trading using opposite Vanguard International and WisdomTree International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard International 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 Vanguard International High and WisdomTree International High 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.
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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