Correlation Between WisdomTree Efficient and First Trust

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

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

Diversification Opportunities for WisdomTree Efficient and First Trust

0.58

Correlation Coefficient

WisdomTree Efficient  First Trust

Very weak diversification

The 3 months correlation between WisdomTree and First is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Efficient Gold and First Trust Multi Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Multi and WisdomTree Efficient 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 Efficient Gold are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Multi has no effect on the direction of WisdomTree Efficient i.e., WisdomTree Efficient and First Trust go up and down completely randomly.

Pair Corralation between WisdomTree Efficient and First Trust

Considering the 90-day investment horizon WisdomTree Efficient Gold is expected to generate 2.72 times more return on investment than First Trust. However, WisdomTree Efficient is 2.72 times more volatile than First Trust Multi Asset. It trades about 0.16 of its potential returns per unit of risk. First Trust Multi Asset is currently generating about 0.09 per unit of risk. If you would invest  3,458  in WisdomTree Efficient Gold on September 12, 2024 and sell it today you would earn a total of  411.00  from holding WisdomTree Efficient Gold or generate 11.89% return on investment over 90 days.

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

WisdomTree Efficient Gold  vs.  First Trust Multi Asset

WisdomTree Efficient Gold

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Efficient Gold are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, WisdomTree Efficient may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust Multi

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Multi Asset are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable forward indicators, First Trust is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with WisdomTree Efficient and First Trust

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

The idea behind WisdomTree Efficient Gold and First Trust Multi Asset 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.