Correlation Between American Sierra and WisdomTree SmallCap

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

By analyzing existing cross correlation between American Sierra Gold and WisdomTree SmallCap Quality, you can compare the effects of market volatilities on American Sierra and WisdomTree SmallCap 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 American Sierra with a short position of WisdomTree SmallCap. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Sierra and WisdomTree SmallCap.

Diversification Opportunities for American Sierra and WisdomTree SmallCap

-0.43

Correlation Coefficient

American Sierra  WisdomTree SmallCap

Very good diversification

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

Pair Corralation between American Sierra and WisdomTree SmallCap

Given the investment horizon of 90 days American Sierra Gold is expected to under-perform the WisdomTree SmallCap. In addition to that, American Sierra is 12.22 times more volatile than WisdomTree SmallCap Quality. It trades about -0.13 of its total potential returns per unit of risk. WisdomTree SmallCap Quality is currently generating about 0.07 per unit of volatility. If you would invest  5,379  in WisdomTree SmallCap Quality on September 17, 2024 and sell it today you would earn a total of  57.00  from holding WisdomTree SmallCap Quality or generate 1.06% return on investment over 90 days.

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

American Sierra Gold  vs.  WisdomTree SmallCap Quality

American Sierra Gold

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Sierra Gold are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, American Sierra reported solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree SmallCap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Quality are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, WisdomTree SmallCap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Sierra and WisdomTree SmallCap

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

The idea behind American Sierra Gold and WisdomTree SmallCap Quality 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 Global Correlations module to find global opportunities by holding instruments from different markets.