Correlation Between WisdomTree MidCap and Vanguard Value

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

Diversification Opportunities for WisdomTree MidCap and Vanguard Value

0.98

Correlation Coefficient

WisdomTree MidCap  Vanguard Value

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 Value Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Factor 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 Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Factor has no effect on the direction of WisdomTree MidCap i.e., WisdomTree MidCap and Vanguard Value go up and down completely randomly.

Pair Corralation between WisdomTree MidCap and Vanguard Value

Considering the 90-day investment horizon WisdomTree MidCap Dividend is expected to generate 0.95 times more return on investment than Vanguard Value. However, WisdomTree MidCap Dividend is 1.05 times less risky than Vanguard Value. It trades about -0.04 of its potential returns per unit of risk. Vanguard Value Factor is currently generating about -0.04 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 Value Factor

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 Value Factor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Value Factor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree MidCap and Vanguard Value

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

The idea behind WisdomTree MidCap Dividend and Vanguard Value Factor 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.

Check out your portfolio center.

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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.