Correlation Between WisdomTree WTI and WisdomTree Brent

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

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

Diversification Opportunities for WisdomTree WTI and WisdomTree Brent

1.0

Correlation Coefficient

WisdomTree WTI  WisdomTree Brent

No risk reduction

The 3 months correlation between WisdomTree and WisdomTree is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree WTI Crude and WisdomTree Brent Crude in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Brent Crude and WisdomTree WTI 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 WTI Crude are associated (or correlated) with WisdomTree Brent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Brent Crude has no effect on the direction of WisdomTree WTI i.e., WisdomTree WTI and WisdomTree Brent go up and down completely randomly.

Pair Corralation between WisdomTree WTI and WisdomTree Brent

Assuming the 90 days trading horizon WisdomTree WTI is expected to generate 2.44 times less return on investment than WisdomTree Brent. But when comparing it to its historical volatility, WisdomTree WTI Crude is 1.35 times less risky than WisdomTree Brent. It trades about 0.0 of its potential returns per unit of risk. WisdomTree Brent Crude is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,899  in WisdomTree Brent Crude on December 29, 2024 and sell it today you would lose (94.00) from holding WisdomTree Brent Crude or give up 3.24% of portfolio value over 90 days.

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

WisdomTree WTI Crude  vs.  WisdomTree Brent Crude

WisdomTree WTI Crude

Risk-Adjusted Performance

Very Weak

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

WisdomTree Brent Crude

Risk-Adjusted Performance

Very Weak

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

Pair Trading with WisdomTree WTI and WisdomTree Brent

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

The idea behind WisdomTree WTI Crude and WisdomTree Brent Crude 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.