Correlation Between WisdomTree SmallCap and Invesco SP

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

Diversification Opportunities for WisdomTree SmallCap and Invesco SP

0.98

Correlation Coefficient

WisdomTree SmallCap  Invesco SP

Almost no diversification

The 3 months correlation between WisdomTree and Invesco is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Earnings and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap 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 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 SmallCap has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and Invesco SP go up and down completely randomly.

Pair Corralation between WisdomTree SmallCap and Invesco SP

Considering the 90-day investment horizon WisdomTree SmallCap Earnings is expected to generate about the same return on investment as Invesco SP SmallCap. However, WisdomTree SmallCap is 1.0 times more volatile than Invesco SP SmallCap. It trades about 0.07 of its potential returns per unit of risk. Invesco SP SmallCap is currently producing about 0.07 per unit of risk. If you would invest  3,935  in Invesco SP SmallCap on October 12, 2024 and sell it today you would earn a total of  632.00  from holding Invesco SP SmallCap or generate 16.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.47%
Values	Daily Returns

WisdomTree SmallCap Earnings  vs.  Invesco SP SmallCap

WisdomTree SmallCap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Earnings are ranked lower than 1 (%) 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.

Invesco SP SmallCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Invesco SP is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with WisdomTree SmallCap and Invesco SP

The main advantage of trading using opposite WisdomTree SmallCap and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree SmallCap 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 SmallCap Earnings and Invesco SP SmallCap 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.