Correlation Between MicroSectors FANG and WisdomTree India

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

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

Diversification Opportunities for MicroSectors FANG and WisdomTree India

-0.26

Correlation Coefficient

MicroSectors FANG  WisdomTree India

Very good diversification

The 3 months correlation between MicroSectors and WisdomTree is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and WisdomTree India Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree India Earnings and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with WisdomTree India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree India Earnings has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and WisdomTree India go up and down completely randomly.

Pair Corralation between MicroSectors FANG and WisdomTree India

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 5.88 times more return on investment than WisdomTree India. However, MicroSectors FANG is 5.88 times more volatile than WisdomTree India Earnings. It trades about -0.01 of its potential returns per unit of risk. WisdomTree India Earnings is currently generating about -0.35 per unit of risk. If you would invest  57,788  in MicroSectors FANG Index on December 5, 2024 and sell it today you would lose (5,438) from holding MicroSectors FANG Index or give up 9.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

MicroSectors FANG Index  vs.  WisdomTree India Earnings

MicroSectors FANG Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, MicroSectors FANG is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree India Earnings

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree India Earnings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the Etf traders.

Pair Trading with MicroSectors FANG and WisdomTree India

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

The idea behind MicroSectors FANG Index and WisdomTree India 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.