Correlation Between WisdomTree Earnings and WisdomTree MidCap

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

By analyzing existing cross correlation between WisdomTree Earnings 500 and WisdomTree MidCap Earnings, you can compare the effects of market volatilities on WisdomTree Earnings and WisdomTree MidCap 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 Earnings with a short position of WisdomTree MidCap. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Earnings and WisdomTree MidCap.

Diversification Opportunities for WisdomTree Earnings and WisdomTree MidCap

0.84

Correlation Coefficient

WisdomTree Earnings  WisdomTree MidCap

Very poor diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Earnings 500 and WisdomTree MidCap Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree MidCap and WisdomTree Earnings 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 Earnings 500 are associated (or correlated) with WisdomTree MidCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree MidCap has no effect on the direction of WisdomTree Earnings i.e., WisdomTree Earnings and WisdomTree MidCap go up and down completely randomly.

Pair Corralation between WisdomTree Earnings and WisdomTree MidCap

Considering the 90-day investment horizon WisdomTree Earnings is expected to generate 1.51 times less return on investment than WisdomTree MidCap. But when comparing it to its historical volatility, WisdomTree Earnings 500 is 1.01 times less risky than WisdomTree MidCap. It trades about 0.11 of its potential returns per unit of risk. WisdomTree MidCap Earnings is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  6,320  in WisdomTree MidCap Earnings on October 27, 2024 and sell it today you would earn a total of  163.00  from holding WisdomTree MidCap Earnings or generate 2.58% return on investment over 90 days.

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

WisdomTree Earnings 500  vs.  WisdomTree MidCap Earnings

WisdomTree Earnings 500

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Earnings 500 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, WisdomTree Earnings is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree MidCap

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree MidCap Earnings are ranked lower than 4 (%) 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 newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree Earnings and WisdomTree MidCap

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

The idea behind WisdomTree Earnings 500 and WisdomTree MidCap Earnings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.