Correlation Between WisdomTree High and Invesco SP

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

By analyzing existing cross correlation between WisdomTree High Dividend and Invesco SP 500, you can compare the effects of market volatilities on WisdomTree High and Invesco SP 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 High with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree High and Invesco SP.

Diversification Opportunities for WisdomTree High and Invesco SP

0.68

Correlation Coefficient

WisdomTree High  Invesco SP

Poor diversification

The 3 months correlation between WisdomTree and Invesco is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree High Dividend and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 and WisdomTree High 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 High Dividend are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 500 has no effect on the direction of WisdomTree High i.e., WisdomTree High and Invesco SP go up and down completely randomly.

Pair Corralation between WisdomTree High and Invesco SP

Considering the 90-day investment horizon WisdomTree High Dividend is expected to generate 0.97 times more return on investment than Invesco SP. However, WisdomTree High Dividend is 1.03 times less risky than Invesco SP. It trades about -0.04 of its potential returns per unit of risk. Invesco SP 500 is currently generating about -0.06 per unit of risk. If you would invest  9,708  in WisdomTree High Dividend on September 15, 2024 and sell it today you would lose (49.00) from holding WisdomTree High Dividend or give up 0.5% of portfolio value over 90 days.

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

WisdomTree High Dividend  vs.  Invesco SP 500

WisdomTree High Dividend

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree High Dividend are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical indicators, WisdomTree High is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Invesco SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Invesco SP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with WisdomTree High and Invesco SP

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

The idea behind WisdomTree High Dividend and Invesco SP 500 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.