Correlation Between ETRACS 2xMonthly and WisdomTree LargeCap

Can any of the company-specific risk be diversified away by investing in both ETRACS 2xMonthly and WisdomTree LargeCap 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 ETRACS 2xMonthly and WisdomTree LargeCap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETRACS 2xMonthly Pay and WisdomTree LargeCap Dividend, you can compare the effects of market volatilities on ETRACS 2xMonthly and WisdomTree LargeCap 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 ETRACS 2xMonthly with a short position of WisdomTree LargeCap. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETRACS 2xMonthly and WisdomTree LargeCap.

Diversification Opportunities for ETRACS 2xMonthly and WisdomTree LargeCap

0.45

Correlation Coefficient

ETRACS 2xMonthly  WisdomTree LargeCap

Very weak diversification

The 3 months correlation between ETRACS and WisdomTree is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding ETRACS 2xMonthly Pay and WisdomTree LargeCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree LargeCap and ETRACS 2xMonthly 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 ETRACS 2xMonthly Pay are associated (or correlated) with WisdomTree LargeCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree LargeCap has no effect on the direction of ETRACS 2xMonthly i.e., ETRACS 2xMonthly and WisdomTree LargeCap go up and down completely randomly.

Pair Corralation between ETRACS 2xMonthly and WisdomTree LargeCap

Given the investment horizon of 90 days ETRACS 2xMonthly Pay is expected to generate 2.13 times more return on investment than WisdomTree LargeCap. However, ETRACS 2xMonthly is 2.13 times more volatile than WisdomTree LargeCap Dividend. It trades about 0.03 of its potential returns per unit of risk. WisdomTree LargeCap Dividend is currently generating about 0.04 per unit of risk. If you would invest  879.00  in ETRACS 2xMonthly Pay on December 27, 2024 and sell it today you would earn a total of  20.00  from holding ETRACS 2xMonthly Pay or generate 2.28% return on investment over 90 days.

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

ETRACS 2xMonthly Pay  vs.  WisdomTree LargeCap Dividend

ETRACS 2xMonthly Pay

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ETRACS 2xMonthly Pay are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, ETRACS 2xMonthly is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

WisdomTree LargeCap

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree LargeCap Dividend are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, WisdomTree LargeCap is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ETRACS 2xMonthly and WisdomTree LargeCap

The main advantage of trading using opposite ETRACS 2xMonthly and WisdomTree LargeCap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETRACS 2xMonthly position performs unexpectedly, WisdomTree LargeCap 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 LargeCap will offset losses from the drop in WisdomTree LargeCap's long position.

The idea behind ETRACS 2xMonthly Pay and WisdomTree LargeCap 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.

Check out your portfolio center.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.