Correlation Between WisdomTree Earnings and Invesco SP

Can any of the company-specific risk be diversified away by investing in both WisdomTree Earnings 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 Earnings 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 Earnings 500 and Invesco SP SmallCap, you can compare the effects of market volatilities on WisdomTree Earnings 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 Earnings with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Earnings and Invesco SP.

Diversification Opportunities for WisdomTree Earnings and Invesco SP

0.92

Correlation Coefficient

WisdomTree Earnings  Invesco SP

Almost no diversification

The 3 months correlation between WisdomTree and Invesco is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Earnings 500 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 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 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 Earnings i.e., WisdomTree Earnings and Invesco SP go up and down completely randomly.

Pair Corralation between WisdomTree Earnings and Invesco SP

Considering the 90-day investment horizon WisdomTree Earnings 500 is expected to generate 0.8 times more return on investment than Invesco SP. However, WisdomTree Earnings 500 is 1.26 times less risky than Invesco SP. It trades about -0.16 of its potential returns per unit of risk. Invesco SP SmallCap is currently generating about -0.3 per unit of risk. If you would invest  6,342  in WisdomTree Earnings 500 on October 12, 2024 and sell it today you would lose (177.00) from holding WisdomTree Earnings 500 or give up 2.79% of portfolio value over 90 days.

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

WisdomTree Earnings 500  vs.  Invesco SP SmallCap

WisdomTree Earnings 500

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Earnings 500 are ranked lower than 2 (%) 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.

Invesco SP SmallCap

Risk-Adjusted Performance

0 of 100

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 Earnings and Invesco SP

The main advantage of trading using opposite WisdomTree Earnings and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Earnings 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 Earnings 500 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.