Correlation Between WisdomTree MidCap and SPDR SP

Can any of the company-specific risk be diversified away by investing in both WisdomTree MidCap and SPDR SP 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 SPDR SP 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 SPDR SP 400, you can compare the effects of market volatilities on WisdomTree MidCap and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree MidCap and SPDR SP.

Diversification Opportunities for WisdomTree MidCap and SPDR SP

0.93

Correlation Coefficient

WisdomTree MidCap  SPDR SP

Almost no diversification

The 3 months correlation between WisdomTree and SPDR is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree MidCap Dividend and SPDR SP 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 400 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 400 has no effect on the direction of WisdomTree MidCap i.e., WisdomTree MidCap and SPDR SP go up and down completely randomly.

Pair Corralation between WisdomTree MidCap and SPDR SP

Considering the 90-day investment horizon WisdomTree MidCap Dividend is expected to under-perform the SPDR SP. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree MidCap Dividend is 1.03 times less risky than SPDR SP. The etf trades about -0.04 of its potential returns per unit of risk. The SPDR SP 400 is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  7,962  in SPDR SP 400 on December 29, 2024 and sell it today you would lose (166.00) from holding SPDR SP 400 or give up 2.08% 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.  SPDR SP 400

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.

SPDR SP 400

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 400 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR SP 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 SPDR SP

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

The idea behind WisdomTree MidCap Dividend and SPDR SP 400 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.