Correlation Between WisdomTree Natural and SSgA SPDR

Can any of the company-specific risk be diversified away by investing in both WisdomTree Natural and SSgA SPDR 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 Natural and SSgA SPDR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between WisdomTree Natural Gas and SSgA SPDR ETFs, you can compare the effects of market volatilities on WisdomTree Natural and SSgA SPDR 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 Natural with a short position of SSgA SPDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Natural and SSgA SPDR.

Diversification Opportunities for WisdomTree Natural and SSgA SPDR

-0.42

Correlation Coefficient

WisdomTree Natural  SSgA SPDR

Very good diversification

The 3 months correlation between WisdomTree and SSgA is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Natural Gas and SSgA SPDR ETFs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR ETFs and WisdomTree Natural 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 Natural Gas are associated (or correlated) with SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR ETFs has no effect on the direction of WisdomTree Natural i.e., WisdomTree Natural and SSgA SPDR go up and down completely randomly.

Pair Corralation between WisdomTree Natural and SSgA SPDR

Assuming the 90 days trading horizon WisdomTree Natural Gas is expected to generate 13.57 times more return on investment than SSgA SPDR. However, WisdomTree Natural is 13.57 times more volatile than SSgA SPDR ETFs. It trades about 0.03 of its potential returns per unit of risk. SSgA SPDR ETFs is currently generating about 0.21 per unit of risk. If you would invest  117,800  in WisdomTree Natural Gas on September 3, 2024 and sell it today you would lose (5,017) from holding WisdomTree Natural Gas or give up 4.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

WisdomTree Natural Gas  vs.  SSgA SPDR ETFs

WisdomTree Natural Gas

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Natural Gas are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree Natural unveiled solid returns over the last few months and may actually be approaching a breakup point.

SSgA SPDR ETFs

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SSgA SPDR ETFs are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SSgA SPDR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with WisdomTree Natural and SSgA SPDR

The main advantage of trading using opposite WisdomTree Natural and SSgA SPDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Natural position performs unexpectedly, SSgA SPDR 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 SSgA SPDR will offset losses from the drop in SSgA SPDR's long position.

The idea behind WisdomTree Natural Gas and SSgA SPDR ETFs 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.