Correlation Between WisdomTree NASDAQ and SP 500

Can any of the company-specific risk be diversified away by investing in both WisdomTree NASDAQ and SP 500 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 NASDAQ and SP 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between WisdomTree NASDAQ 100 and SP 500 VIX, you can compare the effects of market volatilities on WisdomTree NASDAQ and SP 500 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 NASDAQ with a short position of SP 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree NASDAQ and SP 500.

Diversification Opportunities for WisdomTree NASDAQ and SP 500

-0.43

Correlation Coefficient

WisdomTree NASDAQ  SP 500

Very good diversification

The 3 months correlation between WisdomTree and VILX is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree NASDAQ 100 and SP 500 VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 VIX and WisdomTree NASDAQ 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 NASDAQ 100 are associated (or correlated) with SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 VIX has no effect on the direction of WisdomTree NASDAQ i.e., WisdomTree NASDAQ and SP 500 go up and down completely randomly.

Pair Corralation between WisdomTree NASDAQ and SP 500

Assuming the 90 days trading horizon WisdomTree NASDAQ 100 is expected to under-perform the SP 500. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree NASDAQ 100 is 2.66 times less risky than SP 500. The etf trades about -0.04 of its potential returns per unit of risk. The SP 500 VIX is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  161,743  in SP 500 VIX on December 2, 2024 and sell it today you would earn a total of  6,058  from holding SP 500 VIX or generate 3.75% return on investment over 90 days.

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

WisdomTree NASDAQ 100  vs.  SP 500 VIX

WisdomTree NASDAQ 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree NASDAQ 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

SP 500 VIX

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SP 500 VIX are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SP 500 unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WisdomTree NASDAQ and SP 500

The main advantage of trading using opposite WisdomTree NASDAQ and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree NASDAQ position performs unexpectedly, SP 500 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 SP 500 will offset losses from the drop in SP 500's long position.

The idea behind WisdomTree NASDAQ 100 and SP 500 VIX 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.