Correlation Between IShares SP and WisdomTree MidCap

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

By analyzing existing cross correlation between iShares SP Mid Cap and WisdomTree MidCap Dividend, you can compare the effects of market volatilities on IShares SP and WisdomTree MidCap 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 IShares SP with a short position of WisdomTree MidCap. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and WisdomTree MidCap.

Diversification Opportunities for IShares SP and WisdomTree MidCap

0.98

Correlation Coefficient

IShares SP  WisdomTree MidCap

Almost no diversification

The 3 months correlation between IShares and WisdomTree is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Mid Cap and WisdomTree MidCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree MidCap and IShares SP 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 iShares SP Mid Cap are associated (or correlated) with WisdomTree MidCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree MidCap has no effect on the direction of IShares SP i.e., IShares SP and WisdomTree MidCap go up and down completely randomly.

Pair Corralation between IShares SP and WisdomTree MidCap

Considering the 90-day investment horizon iShares SP Mid Cap is expected to under-perform the WisdomTree MidCap. In addition to that, IShares SP is 1.05 times more volatile than WisdomTree MidCap Dividend. It trades about -0.06 of its total potential returns per unit of risk. WisdomTree MidCap Dividend is currently generating about -0.04 per unit of volatility. If you would invest  5,053  in WisdomTree MidCap Dividend on December 29, 2024 and sell it today you would lose (137.00) from holding WisdomTree MidCap Dividend or give up 2.71% of portfolio value over 90 days.

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

iShares SP Mid Cap  vs.  WisdomTree MidCap Dividend

iShares SP Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady forward-looking indicators, IShares SP is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

WisdomTree MidCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree MidCap Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, WisdomTree MidCap is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares SP and WisdomTree MidCap

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

The idea behind iShares SP Mid Cap and WisdomTree MidCap Dividend 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.