Correlation Between Avantis Equity and WisdomTree SmallCap

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

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

Diversification Opportunities for Avantis Equity and WisdomTree SmallCap

0.96

Correlation Coefficient

Avantis Equity  WisdomTree SmallCap

Almost no diversification

The 3 months correlation between Avantis and WisdomTree is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Avantis Equity ETF and WisdomTree SmallCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap and Avantis Equity 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 Avantis Equity ETF 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 Avantis Equity i.e., Avantis Equity and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between Avantis Equity and WisdomTree SmallCap

Given the investment horizon of 90 days Avantis Equity ETF is expected to generate 0.66 times more return on investment than WisdomTree SmallCap. However, Avantis Equity ETF is 1.52 times less risky than WisdomTree SmallCap. It trades about 0.12 of its potential returns per unit of risk. WisdomTree SmallCap Dividend is currently generating about 0.05 per unit of risk. If you would invest  8,064  in Avantis Equity ETF on September 17, 2024 and sell it today you would earn a total of  1,994  from holding Avantis Equity ETF or generate 24.73% return on investment over 90 days.

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

Avantis Equity ETF  vs.  WisdomTree SmallCap Dividend

Avantis Equity ETF

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis Equity ETF are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Avantis Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree SmallCap

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Avantis Equity and WisdomTree SmallCap

The main advantage of trading using opposite Avantis Equity and WisdomTree SmallCap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avantis Equity 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 Avantis Equity ETF and WisdomTree SmallCap Dividend 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.