Correlation Between WisdomTree SmallCap and WisdomTree Total

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

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

Diversification Opportunities for WisdomTree SmallCap and WisdomTree Total

0.94

Correlation Coefficient

WisdomTree SmallCap  WisdomTree Total

Almost no diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Dividend and WisdomTree Total Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Total Dividend and WisdomTree SmallCap 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 SmallCap Dividend are associated (or correlated) with WisdomTree Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Total Dividend has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and WisdomTree Total go up and down completely randomly.

Pair Corralation between WisdomTree SmallCap and WisdomTree Total

Considering the 90-day investment horizon WisdomTree SmallCap Dividend is expected to generate 2.13 times more return on investment than WisdomTree Total. However, WisdomTree SmallCap is 2.13 times more volatile than WisdomTree Total Dividend. It trades about 0.1 of its potential returns per unit of risk. WisdomTree Total Dividend is currently generating about 0.11 per unit of risk. If you would invest  3,359  in WisdomTree SmallCap Dividend on September 16, 2024 and sell it today you would earn a total of  263.00  from holding WisdomTree SmallCap Dividend or generate 7.83% return on investment over 90 days.

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

WisdomTree SmallCap Dividend  vs.  WisdomTree Total Dividend

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 weak technical and fundamental indicators, WisdomTree SmallCap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree Total Dividend

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Total Dividend are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, WisdomTree Total is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with WisdomTree SmallCap and WisdomTree Total

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

The idea behind WisdomTree SmallCap Dividend and WisdomTree Total 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.