Correlation Between WisdomTree Floating and State Farm

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

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

Diversification Opportunities for WisdomTree Floating and State Farm

0.62

Correlation Coefficient

WisdomTree Floating  State Farm

Poor diversification

The 3 months correlation between WisdomTree and State is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Floating Rate and State Farm Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm Municipal and WisdomTree Floating 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 Floating Rate are associated (or correlated) with State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm Municipal has no effect on the direction of WisdomTree Floating i.e., WisdomTree Floating and State Farm go up and down completely randomly.

Pair Corralation between WisdomTree Floating and State Farm

Assuming the 90 days horizon WisdomTree Floating Rate is expected to generate 0.74 times more return on investment than State Farm. However, WisdomTree Floating Rate is 1.34 times less risky than State Farm. It trades about 0.13 of its potential returns per unit of risk. State Farm Municipal is currently generating about 0.08 per unit of risk. If you would invest  100.00  in WisdomTree Floating Rate on December 23, 2024 and sell it today you would earn a total of  1.00  from holding WisdomTree Floating Rate or generate 1.0% return on investment over 90 days.

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

WisdomTree Floating Rate  vs.  State Farm Municipal

WisdomTree Floating Rate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Floating Rate are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, WisdomTree Floating is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

State Farm Municipal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in State Farm Municipal are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, State Farm is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree Floating and State Farm

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

The idea behind WisdomTree Floating Rate and State Farm Municipal 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.