Correlation Between WisdomTree Natural and ETC Group

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

Diversification Opportunities for WisdomTree Natural and ETC Group

-0.03

Correlation Coefficient

WisdomTree Natural  ETC Group

Good diversification

The 3 months correlation between WisdomTree and ETC is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Natural Gas and ETC Group Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETC Group Global 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 ETC Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETC Group Global has no effect on the direction of WisdomTree Natural i.e., WisdomTree Natural and ETC Group go up and down completely randomly.

Pair Corralation between WisdomTree Natural and ETC Group

Assuming the 90 days trading horizon WisdomTree Natural Gas is expected to generate 6.36 times more return on investment than ETC Group. However, WisdomTree Natural is 6.36 times more volatile than ETC Group Global. It trades about 0.32 of its potential returns per unit of risk. ETC Group Global is currently generating about 0.1 per unit of risk. If you would invest  120,970  in WisdomTree Natural Gas on October 24, 2024 and sell it today you would earn a total of  85,089  from holding WisdomTree Natural Gas or generate 70.34% return on investment over 90 days.

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

WisdomTree Natural Gas  vs.  ETC Group Global

WisdomTree Natural Gas

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Natural Gas are ranked lower than 11 (%) 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.

ETC Group Global

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ETC Group Global are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ETC Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WisdomTree Natural and ETC Group

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

The idea behind WisdomTree Natural Gas and ETC Group Global 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.