Correlation Between WisdomTree Natural and SPDR SP

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

By analyzing existing cross correlation between WisdomTree Natural Gas and SPDR SP 500, you can compare the effects of market volatilities on WisdomTree Natural and SPDR SP 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 Natural with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Natural and SPDR SP.

Diversification Opportunities for WisdomTree Natural and SPDR SP

0.01

Correlation Coefficient

WisdomTree Natural  SPDR SP

Significant diversification

The 3 months correlation between WisdomTree and SPDR is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Natural Gas and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 and WisdomTree Natural 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 Natural Gas are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 500 has no effect on the direction of WisdomTree Natural i.e., WisdomTree Natural and SPDR SP go up and down completely randomly.

Pair Corralation between WisdomTree Natural and SPDR SP

Assuming the 90 days trading horizon WisdomTree Natural Gas is expected to under-perform the SPDR SP. In addition to that, WisdomTree Natural is 4.31 times more volatile than SPDR SP 500. It trades about -0.01 of its total potential returns per unit of risk. SPDR SP 500 is currently generating about 0.3 per unit of volatility. If you would invest  1,012  in SPDR SP 500 on September 5, 2024 and sell it today you would earn a total of  149.00  from holding SPDR SP 500 or generate 14.72% return on investment over 90 days.

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

WisdomTree Natural Gas  vs.  SPDR SP 500

WisdomTree Natural Gas

Risk-Adjusted Performance

0 of 100

Very Weak

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

SPDR SP 500

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR SP unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WisdomTree Natural and SPDR SP

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

The idea behind WisdomTree Natural Gas and SPDR SP 500 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.