Correlation Between Goldman Sachs and WisdomTree Europe

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

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

Diversification Opportunities for Goldman Sachs and WisdomTree Europe

0.19

Correlation Coefficient

Goldman Sachs  WisdomTree Europe

Average diversification

The 3 months correlation between Goldman and WisdomTree is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Goldman Sachs ActiveBeta and WisdomTree Europe Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe Quality and Goldman Sachs 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 Goldman Sachs ActiveBeta are associated (or correlated) with WisdomTree Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Europe Quality has no effect on the direction of Goldman Sachs i.e., Goldman Sachs and WisdomTree Europe go up and down completely randomly.

Pair Corralation between Goldman Sachs and WisdomTree Europe

Given the investment horizon of 90 days Goldman Sachs ActiveBeta is expected to generate 1.24 times more return on investment than WisdomTree Europe. However, Goldman Sachs is 1.24 times more volatile than WisdomTree Europe Quality. It trades about 0.05 of its potential returns per unit of risk. WisdomTree Europe Quality is currently generating about 0.04 per unit of risk. If you would invest  3,034  in Goldman Sachs ActiveBeta on October 27, 2024 and sell it today you would earn a total of  774.50  from holding Goldman Sachs ActiveBeta or generate 25.53% return on investment over 90 days.

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

Goldman Sachs ActiveBeta  vs.  WisdomTree Europe Quality

Goldman Sachs ActiveBeta

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs ActiveBeta are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward-looking indicators, Goldman Sachs is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

WisdomTree Europe Quality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Europe Quality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, WisdomTree Europe is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Goldman Sachs and WisdomTree Europe

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

The idea behind Goldman Sachs ActiveBeta and WisdomTree Europe 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.

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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.