Correlation Between ETF Series and WisdomTree Target

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

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

Diversification Opportunities for ETF Series and WisdomTree Target

0.97

Correlation Coefficient

ETF Series  WisdomTree Target

Almost no diversification

The 3 months correlation between ETF and WisdomTree is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding ETF Series Solutions and WisdomTree Target Range in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Target Range and ETF Series 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 ETF Series Solutions are associated (or correlated) with WisdomTree Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Target Range has no effect on the direction of ETF Series i.e., ETF Series and WisdomTree Target go up and down completely randomly.

Pair Corralation between ETF Series and WisdomTree Target

Given the investment horizon of 90 days ETF Series Solutions is expected to generate 1.03 times more return on investment than WisdomTree Target. However, ETF Series is 1.03 times more volatile than WisdomTree Target Range. It trades about 0.13 of its potential returns per unit of risk. WisdomTree Target Range is currently generating about 0.1 per unit of risk. If you would invest  3,333  in ETF Series Solutions on September 17, 2024 and sell it today you would earn a total of  176.00  from holding ETF Series Solutions or generate 5.28% return on investment over 90 days.

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

ETF Series Solutions  vs.  WisdomTree Target Range

ETF Series Solutions

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ETF Series Solutions are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ETF Series is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

WisdomTree Target Range

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Target Range are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, WisdomTree Target is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ETF Series and WisdomTree Target

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

The idea behind ETF Series Solutions and WisdomTree Target Range 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.