Correlation Between WisdomTree MidCap and Vanguard

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

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

Diversification Opportunities for WisdomTree MidCap and Vanguard

0.98

Correlation Coefficient

WisdomTree MidCap  Vanguard

Almost no diversification

The 3 months correlation between WisdomTree and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree MidCap Dividend and Vanguard SP Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Mid and WisdomTree MidCap 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 MidCap Dividend are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Mid has no effect on the direction of WisdomTree MidCap i.e., WisdomTree MidCap and Vanguard go up and down completely randomly.

Pair Corralation between WisdomTree MidCap and Vanguard

Considering the 90-day investment horizon WisdomTree MidCap Dividend is expected to generate 0.96 times more return on investment than Vanguard. However, WisdomTree MidCap Dividend is 1.04 times less risky than Vanguard. It trades about -0.04 of its potential returns per unit of risk. Vanguard SP Mid Cap is currently generating about -0.06 per unit of risk. If you would invest  5,053  in WisdomTree MidCap Dividend on December 30, 2024 and sell it today you would lose (137.00) from holding WisdomTree MidCap Dividend or give up 2.71% of portfolio value over 90 days.

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

WisdomTree MidCap Dividend  vs.  Vanguard SP Mid Cap

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 very healthy basic indicators, WisdomTree MidCap is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Vanguard SP Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with WisdomTree MidCap and Vanguard

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

The idea behind WisdomTree MidCap Dividend and Vanguard SP Mid Cap 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.