Correlation Between WisdomTree LargeCap and WisdomTree International

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

Diversification Opportunities for WisdomTree LargeCap and WisdomTree International

0.4

Correlation Coefficient

WisdomTree LargeCap  WisdomTree International

Very weak diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree LargeCap Dividend and WisdomTree International Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree International 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 International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree International has no effect on the direction of WisdomTree LargeCap i.e., WisdomTree LargeCap and WisdomTree International go up and down completely randomly.

Pair Corralation between WisdomTree LargeCap and WisdomTree International

Considering the 90-day investment horizon WisdomTree LargeCap is expected to generate 3.95 times less return on investment than WisdomTree International. But when comparing it to its historical volatility, WisdomTree LargeCap Dividend is 1.11 times less risky than WisdomTree International. It trades about 0.04 of its potential returns per unit of risk. WisdomTree International SmallCap is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  6,265  in WisdomTree International SmallCap on December 29, 2024 and sell it today you would earn a total of  416.00  from holding WisdomTree International SmallCap or generate 6.64% return on investment over 90 days.

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

WisdomTree LargeCap Dividend  vs.  WisdomTree International Small

WisdomTree LargeCap

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree LargeCap Dividend are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree International SmallCap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating essential indicators, WisdomTree International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with WisdomTree LargeCap and WisdomTree International

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

The idea behind WisdomTree LargeCap Dividend and WisdomTree International SmallCap 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.