Correlation Between WisdomTree LargeCap and WisdomTree SmallCap

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

Diversification Opportunities for WisdomTree LargeCap and WisdomTree SmallCap

0.77

Correlation Coefficient

WisdomTree LargeCap  WisdomTree SmallCap

Poor diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree LargeCap Dividend and WisdomTree SmallCap Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap 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 SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of WisdomTree LargeCap i.e., WisdomTree LargeCap and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between WisdomTree LargeCap and WisdomTree SmallCap

Considering the 90-day investment horizon WisdomTree LargeCap Dividend is expected to generate 0.5 times more return on investment than WisdomTree SmallCap. However, WisdomTree LargeCap Dividend is 2.02 times less risky than WisdomTree SmallCap. It trades about 0.09 of its potential returns per unit of risk. WisdomTree SmallCap Earnings is currently generating about 0.03 per unit of risk. If you would invest  6,047  in WisdomTree LargeCap Dividend on October 26, 2024 and sell it today you would earn a total of  1,988  from holding WisdomTree LargeCap Dividend or generate 32.88% return on investment over 90 days.

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

WisdomTree LargeCap Dividend  vs.  WisdomTree SmallCap Earnings

WisdomTree LargeCap

Risk-Adjusted Performance

3 of 100

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 SmallCap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Earnings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, WisdomTree SmallCap 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 SmallCap

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

The idea behind WisdomTree LargeCap Dividend and WisdomTree SmallCap Earnings 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.