Correlation Between NYSE Composite and WisdomTree Yield

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

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

Diversification Opportunities for NYSE Composite and WisdomTree Yield

0.2

Correlation Coefficient

NYSE Composite  WisdomTree Yield

Modest diversification

The 3 months correlation between NYSE and WisdomTree is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and WisdomTree Yield Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Yield Enhanced and NYSE Composite 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 NYSE Composite are associated (or correlated) with WisdomTree Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Yield Enhanced has no effect on the direction of NYSE Composite i.e., NYSE Composite and WisdomTree Yield go up and down completely randomly.

Pair Corralation between NYSE Composite and WisdomTree Yield

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.71 times less return on investment than WisdomTree Yield. In addition to that, NYSE Composite is 2.59 times more volatile than WisdomTree Yield Enhanced. It trades about 0.02 of its total potential returns per unit of risk. WisdomTree Yield Enhanced is currently generating about 0.11 per unit of volatility. If you would invest  4,245  in WisdomTree Yield Enhanced on December 30, 2024 and sell it today you would earn a total of  87.00  from holding WisdomTree Yield Enhanced or generate 2.05% return on investment over 90 days.

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

NYSE Composite  vs.  WisdomTree Yield Enhanced

Pair Trading with NYSE Composite and WisdomTree Yield

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

The idea behind NYSE Composite and WisdomTree Yield Enhanced 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.