Correlation Between IShares Yield and WisdomTree Yield

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

By analyzing existing cross correlation between iShares Yield Optimized and WisdomTree Yield Enhanced, you can compare the effects of market volatilities on IShares Yield and WisdomTree Yield 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 IShares Yield with a short position of WisdomTree Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Yield and WisdomTree Yield.

Diversification Opportunities for IShares Yield and WisdomTree Yield

0.91

Correlation Coefficient

IShares Yield  WisdomTree Yield

Almost no diversification

The 3 months correlation between IShares and WisdomTree is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Yield Optimized and WisdomTree Yield Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Yield Enhanced and IShares Yield 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 iShares Yield Optimized are associated (or correlated) with WisdomTree Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Yield Enhanced has no effect on the direction of IShares Yield i.e., IShares Yield and WisdomTree Yield go up and down completely randomly.

Pair Corralation between IShares Yield and WisdomTree Yield

Given the investment horizon of 90 days IShares Yield is expected to generate 1.29 times less return on investment than WisdomTree Yield. But when comparing it to its historical volatility, iShares Yield Optimized is 1.41 times less risky than WisdomTree Yield. It trades about 0.35 of its potential returns per unit of risk. WisdomTree Yield Enhanced is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  4,283  in WisdomTree Yield Enhanced on December 3, 2024 and sell it today you would earn a total of  97.00  from holding WisdomTree Yield Enhanced or generate 2.26% return on investment over 90 days.

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

iShares Yield Optimized  vs.  WisdomTree Yield Enhanced

iShares Yield Optimized

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Yield Optimized are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, IShares Yield is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

WisdomTree Yield Enhanced

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Yield Enhanced are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, WisdomTree Yield is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Yield and WisdomTree Yield

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

The idea behind iShares Yield Optimized and WisdomTree Yield Enhanced 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.