Correlation Between WisdomTree SmallCap and WisdomTree Total

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

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

Diversification Opportunities for WisdomTree SmallCap and WisdomTree Total

0.8

Correlation Coefficient

WisdomTree SmallCap  WisdomTree Total

Very poor diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Earnings and WisdomTree Total Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Total Dividend and WisdomTree SmallCap 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 SmallCap Earnings are associated (or correlated) with WisdomTree Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Total Dividend has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and WisdomTree Total go up and down completely randomly.

Pair Corralation between WisdomTree SmallCap and WisdomTree Total

Considering the 90-day investment horizon WisdomTree SmallCap is expected to generate 1.34 times less return on investment than WisdomTree Total. In addition to that, WisdomTree SmallCap is 1.9 times more volatile than WisdomTree Total Dividend. It trades about 0.03 of its total potential returns per unit of risk. WisdomTree Total Dividend is currently generating about 0.08 per unit of volatility. If you would invest  5,959  in WisdomTree Total Dividend on October 26, 2024 and sell it today you would earn a total of  1,880  from holding WisdomTree Total Dividend or generate 31.55% return on investment over 90 days.

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

WisdomTree SmallCap Earnings  vs.  WisdomTree Total Dividend

WisdomTree SmallCap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Earnings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, WisdomTree SmallCap is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree Total Dividend

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Total Dividend are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, WisdomTree Total is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with WisdomTree SmallCap and WisdomTree Total

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

The idea behind WisdomTree SmallCap Earnings and WisdomTree Total Dividend 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.