Correlation Between WisdomTree MidCap and Invesco SP

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

Diversification Opportunities for WisdomTree MidCap and Invesco SP

0.93

Correlation Coefficient

WisdomTree MidCap  Invesco SP

Almost no diversification

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

Pair Corralation between WisdomTree MidCap and Invesco SP

Considering the 90-day investment horizon WisdomTree MidCap Dividend is expected to generate 1.26 times more return on investment than Invesco SP. However, WisdomTree MidCap is 1.26 times more volatile than Invesco SP Ultra. It trades about -0.21 of its potential returns per unit of risk. Invesco SP Ultra is currently generating about -0.3 per unit of risk. If you would invest  5,311  in WisdomTree MidCap Dividend on September 20, 2024 and sell it today you would lose (243.00) from holding WisdomTree MidCap Dividend or give up 4.58% 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.  Invesco SP Ultra

WisdomTree MidCap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree MidCap Dividend are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, WisdomTree MidCap is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Invesco SP Ultra

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind WisdomTree MidCap Dividend and Invesco SP Ultra 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.