Correlation Between WisdomTree SmallCap and First Trust

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

By analyzing existing cross correlation between WisdomTree SmallCap Quality and First Trust Japan, you can compare the effects of market volatilities on WisdomTree SmallCap and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree SmallCap and First Trust.

Diversification Opportunities for WisdomTree SmallCap and First Trust

-0.68

Correlation Coefficient

WisdomTree SmallCap  First Trust

Excellent diversification

The 3 months correlation between WisdomTree and First is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Quality and First Trust Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Japan 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 Quality are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Japan has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and First Trust go up and down completely randomly.

Pair Corralation between WisdomTree SmallCap and First Trust

Given the investment horizon of 90 days WisdomTree SmallCap Quality is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree SmallCap Quality is 1.02 times less risky than First Trust. The etf trades about -0.12 of its potential returns per unit of risk. The First Trust Japan is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  5,050  in First Trust Japan on December 21, 2024 and sell it today you would earn a total of  700.00  from holding First Trust Japan or generate 13.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

WisdomTree SmallCap Quality  vs.  First Trust Japan

WisdomTree SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree SmallCap Quality has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

First Trust Japan

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Japan are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward-looking indicators, First Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WisdomTree SmallCap and First Trust

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

The idea behind WisdomTree SmallCap Quality and First Trust Japan 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..