Correlation Between WisdomTree MidCap and Alpha Architect

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

Diversification Opportunities for WisdomTree MidCap and Alpha Architect

0.93

Correlation Coefficient

WisdomTree MidCap  Alpha Architect

Almost no diversification

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

Pair Corralation between WisdomTree MidCap and Alpha Architect

Considering the 90-day investment horizon WisdomTree MidCap Dividend is expected to generate 0.95 times more return on investment than Alpha Architect. However, WisdomTree MidCap Dividend is 1.06 times less risky than Alpha Architect. It trades about -0.04 of its potential returns per unit of risk. Alpha Architect Quantitative is currently generating about -0.07 per unit of risk. If you would invest  5,053  in WisdomTree MidCap Dividend on December 29, 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.  Alpha Architect Quantitative

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.

Alpha Architect Quan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alpha Architect Quantitative has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Alpha Architect is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with WisdomTree MidCap and Alpha Architect

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

The idea behind WisdomTree MidCap Dividend and Alpha Architect Quantitative 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.