Correlation Between WisdomTree Quality and First Trust

Can any of the company-specific risk be diversified away by investing in both WisdomTree Quality 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 Quality 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 Quality Dividend and First Trust Rising, you can compare the effects of market volatilities on WisdomTree Quality 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 Quality with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Quality and First Trust.

Diversification Opportunities for WisdomTree Quality and First Trust

0.81

Correlation Coefficient

WisdomTree Quality  First Trust

Very poor diversification

The 3 months correlation between WisdomTree and First is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Quality Dividend and First Trust Rising in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Rising and WisdomTree Quality 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 Quality Dividend 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 Rising has no effect on the direction of WisdomTree Quality i.e., WisdomTree Quality and First Trust go up and down completely randomly.

Pair Corralation between WisdomTree Quality and First Trust

Given the investment horizon of 90 days WisdomTree Quality is expected to generate 1.66 times less return on investment than First Trust. But when comparing it to its historical volatility, WisdomTree Quality Dividend is 1.81 times less risky than First Trust. It trades about 0.08 of its potential returns per unit of risk. First Trust Rising is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,782  in First Trust Rising on September 18, 2024 and sell it today you would earn a total of  285.00  from holding First Trust Rising or generate 4.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

WisdomTree Quality Dividend  vs.  First Trust Rising

WisdomTree Quality

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Quality Dividend are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, WisdomTree Quality is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

First Trust Rising

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Rising are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, First Trust is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree Quality and First Trust

The main advantage of trading using opposite WisdomTree Quality and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Quality 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 Quality Dividend and First Trust Rising 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.

Check out your portfolio center.

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.