Correlation Between WisdomTree Natural and IShares SP

Can any of the company-specific risk be diversified away by investing in both WisdomTree Natural and IShares SP 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 IShares SP 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 iShares SP SmallCap, you can compare the effects of market volatilities on WisdomTree Natural and IShares SP 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 IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Natural and IShares SP.

Diversification Opportunities for WisdomTree Natural and IShares SP

-0.43

Correlation Coefficient

WisdomTree Natural  IShares SP

Very good diversification

The 3 months correlation between WisdomTree and IShares is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Natural Gas and iShares SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP SmallCap 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 IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP SmallCap has no effect on the direction of WisdomTree Natural i.e., WisdomTree Natural and IShares SP go up and down completely randomly.

Pair Corralation between WisdomTree Natural and IShares SP

Assuming the 90 days trading horizon WisdomTree Natural Gas is expected to generate 9.79 times more return on investment than IShares SP. However, WisdomTree Natural is 9.79 times more volatile than iShares SP SmallCap. It trades about 0.19 of its potential returns per unit of risk. iShares SP SmallCap is currently generating about -0.35 per unit of risk. If you would invest  95,326  in WisdomTree Natural Gas on October 8, 2024 and sell it today you would earn a total of  29,714  from holding WisdomTree Natural Gas or generate 31.17% return on investment over 90 days.

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

WisdomTree Natural Gas  vs.  iShares SP SmallCap

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.

iShares SP SmallCap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP SmallCap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares SP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with WisdomTree Natural and IShares SP

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

The idea behind WisdomTree Natural Gas and iShares SP SmallCap 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.