Correlation Between WisdomTree LargeCap and WisdomTree High

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

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

Diversification Opportunities for WisdomTree LargeCap and WisdomTree High

0.94

Correlation Coefficient

WisdomTree LargeCap  WisdomTree High

Almost no diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree LargeCap Dividend and WisdomTree High Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree High Dividend and WisdomTree LargeCap 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 LargeCap Dividend are associated (or correlated) with WisdomTree High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree High Dividend has no effect on the direction of WisdomTree LargeCap i.e., WisdomTree LargeCap and WisdomTree High go up and down completely randomly.

Pair Corralation between WisdomTree LargeCap and WisdomTree High

Considering the 90-day investment horizon WisdomTree LargeCap Dividend is expected to under-perform the WisdomTree High. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree LargeCap Dividend is 1.1 times less risky than WisdomTree High. The etf trades about -0.03 of its potential returns per unit of risk. The WisdomTree High Dividend is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  9,822  in WisdomTree High Dividend on December 5, 2024 and sell it today you would lose (57.00) from holding WisdomTree High Dividend or give up 0.58% of portfolio value over 90 days.

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

WisdomTree LargeCap Dividend  vs.  WisdomTree High Dividend

WisdomTree LargeCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree LargeCap Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, WisdomTree LargeCap is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

WisdomTree High Dividend

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree High Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with WisdomTree LargeCap and WisdomTree High

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

The idea behind WisdomTree LargeCap Dividend and WisdomTree High Dividend 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.