Correlation Between WisdomTree Natural and JPM BetaBuilders

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

Diversification Opportunities for WisdomTree Natural and JPM BetaBuilders

0.18

Correlation Coefficient

WisdomTree Natural  JPM BetaBuilders

Average diversification

The 3 months correlation between WisdomTree and JPM is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Natural Gas and JPM BetaBuilders China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPM BetaBuilders China 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 JPM BetaBuilders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPM BetaBuilders China has no effect on the direction of WisdomTree Natural i.e., WisdomTree Natural and JPM BetaBuilders go up and down completely randomly.

Pair Corralation between WisdomTree Natural and JPM BetaBuilders

Assuming the 90 days trading horizon WisdomTree Natural Gas is expected to generate 47.52 times more return on investment than JPM BetaBuilders. However, WisdomTree Natural is 47.52 times more volatile than JPM BetaBuilders China. It trades about 0.13 of its potential returns per unit of risk. JPM BetaBuilders China is currently generating about 0.05 per unit of risk. If you would invest  114,319  in WisdomTree Natural Gas on October 24, 2024 and sell it today you would earn a total of  71,472  from holding WisdomTree Natural Gas or generate 62.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

WisdomTree Natural Gas  vs.  JPM BetaBuilders China

WisdomTree Natural Gas

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Natural Gas are ranked lower than 10 (%) 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.

JPM BetaBuilders China

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in JPM BetaBuilders China are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, JPM BetaBuilders 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 JPM BetaBuilders

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

The idea behind WisdomTree Natural Gas and JPM BetaBuilders China 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.