Correlation Between Principal Value and WisdomTree Emerging

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

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

Diversification Opportunities for Principal Value and WisdomTree Emerging

-0.29

Correlation Coefficient

Principal Value  WisdomTree Emerging

Very good diversification

The 3 months correlation between Principal and WisdomTree is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Principal Value ETF and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging and Principal Value 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 Principal Value ETF are associated (or correlated) with WisdomTree Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of Principal Value i.e., Principal Value and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between Principal Value and WisdomTree Emerging

Allowing for the 90-day total investment horizon Principal Value ETF is expected to generate 0.82 times more return on investment than WisdomTree Emerging. However, Principal Value ETF is 1.22 times less risky than WisdomTree Emerging. It trades about 0.18 of its potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about -0.01 per unit of risk. If you would invest  4,819  in Principal Value ETF on September 3, 2024 and sell it today you would earn a total of  414.00  from holding Principal Value ETF or generate 8.59% return on investment over 90 days.

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

Principal Value ETF  vs.  WisdomTree Emerging Markets

Principal Value ETF

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Value ETF are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Principal Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Emerging Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, WisdomTree Emerging is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Principal Value and WisdomTree Emerging

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

The idea behind Principal Value ETF and WisdomTree Emerging Markets 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.