Correlation Between WisdomTree International and WisdomTree MidCap

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

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

Diversification Opportunities for WisdomTree International and WisdomTree MidCap

0.2

Correlation Coefficient

WisdomTree International  WisdomTree MidCap

Modest diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International Small and WisdomTree MidCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree MidCap and WisdomTree International 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 International SmallCap are associated (or correlated) with WisdomTree MidCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree MidCap has no effect on the direction of WisdomTree International i.e., WisdomTree International and WisdomTree MidCap go up and down completely randomly.

Pair Corralation between WisdomTree International and WisdomTree MidCap

Considering the 90-day investment horizon WisdomTree International is expected to generate 1.45 times less return on investment than WisdomTree MidCap. But when comparing it to its historical volatility, WisdomTree International SmallCap is 1.15 times less risky than WisdomTree MidCap. It trades about 0.05 of its potential returns per unit of risk. WisdomTree MidCap Dividend is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,805  in WisdomTree MidCap Dividend on December 5, 2024 and sell it today you would earn a total of  1,166  from holding WisdomTree MidCap Dividend or generate 30.64% return on investment over 90 days.

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

WisdomTree International Small  vs.  WisdomTree MidCap Dividend

WisdomTree International

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree International SmallCap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, WisdomTree International is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree MidCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree MidCap Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with WisdomTree International and WisdomTree MidCap

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

The idea behind WisdomTree International SmallCap and WisdomTree MidCap 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.