Correlation Between IShares SP and WisdomTree SmallCap

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

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

Diversification Opportunities for IShares SP and WisdomTree SmallCap

0.99

Correlation Coefficient

IShares SP  WisdomTree SmallCap

No risk reduction

The 3 months correlation between IShares and WisdomTree is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Small Cap and WisdomTree SmallCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap 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 Small Cap are associated (or correlated) with WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of IShares SP i.e., IShares SP and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between IShares SP and WisdomTree SmallCap

Considering the 90-day investment horizon iShares SP Small Cap is expected to under-perform the WisdomTree SmallCap. In addition to that, IShares SP is 1.13 times more volatile than WisdomTree SmallCap Dividend. It trades about -0.15 of its total potential returns per unit of risk. WisdomTree SmallCap Dividend is currently generating about -0.1 per unit of volatility. If you would invest  3,400  in WisdomTree SmallCap Dividend on December 30, 2024 and sell it today you would lose (208.00) from holding WisdomTree SmallCap Dividend or give up 6.12% 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 Small Cap  vs.  WisdomTree SmallCap Dividend

iShares SP Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's forward-looking indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

WisdomTree SmallCap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares SP and WisdomTree SmallCap

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

The idea behind iShares SP Small Cap and WisdomTree SmallCap 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.