Correlation Between WisdomTree SmallCap and Vanguard Small

Can any of the company-specific risk be diversified away by investing in both WisdomTree SmallCap and Vanguard Small 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 Vanguard Small 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 Vanguard Small Cap Value, you can compare the effects of market volatilities on WisdomTree SmallCap and Vanguard Small 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 Vanguard Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree SmallCap and Vanguard Small.

Diversification Opportunities for WisdomTree SmallCap and Vanguard Small

0.98

Correlation Coefficient

WisdomTree SmallCap  Vanguard Small

Almost no diversification

The 3 months correlation between WisdomTree and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Dividend and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and Vanguard Small go up and down completely randomly.

Pair Corralation between WisdomTree SmallCap and Vanguard Small

Considering the 90-day investment horizon WisdomTree SmallCap Dividend is expected to under-perform the Vanguard Small. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree SmallCap Dividend is 1.04 times less risky than Vanguard Small. The etf trades about -0.1 of its potential returns per unit of risk. The Vanguard Small Cap Value is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  19,635  in Vanguard Small Cap Value on December 30, 2024 and sell it today you would lose (1,077) from holding Vanguard Small Cap Value or give up 5.49% of portfolio value over 90 days.

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

WisdomTree SmallCap Dividend  vs.  Vanguard Small Cap Value

WisdomTree SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree SmallCap Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, WisdomTree SmallCap is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Value has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Vanguard Small is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with WisdomTree SmallCap and Vanguard Small

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

The idea behind WisdomTree SmallCap Dividend and Vanguard Small Cap Value 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.