Correlation Between WisdomTree and SPDR SP

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

By analyzing existing cross correlation between WisdomTree SP 500 and SPDR SP Energy, you can compare the effects of market volatilities on WisdomTree and SPDR 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 with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree and SPDR SP.

Diversification Opportunities for WisdomTree and SPDR SP

-0.71

Correlation Coefficient

WisdomTree  SPDR SP

Pay attention - limited upside

The 3 months correlation between WisdomTree and SPDR is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SP 500 and SPDR SP Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Energy and WisdomTree 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 SP 500 are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Energy has no effect on the direction of WisdomTree i.e., WisdomTree and SPDR SP go up and down completely randomly.

Pair Corralation between WisdomTree and SPDR SP

Assuming the 90 days trading horizon WisdomTree SP 500 is expected to under-perform the SPDR SP. In addition to that, WisdomTree is 1.68 times more volatile than SPDR SP Energy. It trades about -0.15 of its total potential returns per unit of risk. SPDR SP Energy is currently generating about 0.14 per unit of volatility. If you would invest  2,541  in SPDR SP Energy on September 5, 2024 and sell it today you would earn a total of  326.00  from holding SPDR SP Energy or generate 12.83% return on investment over 90 days.

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

WisdomTree SP 500  vs.  SPDR SP Energy

WisdomTree SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

SPDR SP Energy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Energy are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with WisdomTree and SPDR SP

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

The idea behind WisdomTree SP 500 and SPDR SP Energy 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.