Correlation Between First Trust and WisdomTree SmallCap

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

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

Diversification Opportunities for First Trust and WisdomTree SmallCap

-0.68

Correlation Coefficient

First Trust  WisdomTree SmallCap

Excellent diversification

The 3 months correlation between First and WisdomTree is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Japan and WisdomTree SmallCap Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap and First Trust 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 First Trust Japan are associated (or correlated) with WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of First Trust i.e., First Trust and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between First Trust and WisdomTree SmallCap

Considering the 90-day investment horizon First Trust Japan is expected to generate 1.02 times more return on investment than WisdomTree SmallCap. However, First Trust is 1.02 times more volatile than WisdomTree SmallCap Quality. It trades about 0.21 of its potential returns per unit of risk. WisdomTree SmallCap Quality is currently generating about -0.12 per unit of risk. If you would invest  5,050  in First Trust Japan on December 21, 2024 and sell it today you would earn a total of  700.00  from holding First Trust Japan or generate 13.86% return on investment over 90 days.

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

First Trust Japan  vs.  WisdomTree SmallCap Quality

First Trust Japan

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Japan are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward-looking indicators, First Trust reported solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree SmallCap Quality has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with First Trust and WisdomTree SmallCap

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

The idea behind First Trust Japan and WisdomTree SmallCap Quality 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.