Correlation Between WisdomTree SmallCap and Vanguard

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

Diversification Opportunities for WisdomTree SmallCap and Vanguard

0.99

Correlation Coefficient

WisdomTree SmallCap  Vanguard

No risk reduction

The 3 months correlation between WisdomTree and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Dividend and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Small has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and Vanguard go up and down completely randomly.

Pair Corralation between WisdomTree SmallCap and Vanguard

Considering the 90-day investment horizon WisdomTree SmallCap Dividend is expected to generate 0.88 times more return on investment than Vanguard. However, WisdomTree SmallCap Dividend is 1.14 times less risky than Vanguard. It trades about -0.1 of its potential returns per unit of risk. Vanguard SP Small Cap is currently generating about -0.14 per unit of risk. If you would invest  3,400  in WisdomTree SmallCap Dividend on December 30, 2024 and sell it today you would lose (208.00) from holding WisdomTree SmallCap Dividend or give up 6.12% 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 SP Small Cap

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 SP Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with WisdomTree SmallCap and Vanguard

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

The idea behind WisdomTree SmallCap Dividend and Vanguard SP Small Cap 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.