Correlation Between WisdomTree NASDAQ and WisdomTree Zinc

Can any of the company-specific risk be diversified away by investing in both WisdomTree NASDAQ and WisdomTree Zinc 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 WisdomTree Zinc 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 WisdomTree Zinc, you can compare the effects of market volatilities on WisdomTree NASDAQ and WisdomTree Zinc 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 WisdomTree Zinc. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree NASDAQ and WisdomTree Zinc.

Diversification Opportunities for WisdomTree NASDAQ and WisdomTree Zinc

0.61

Correlation Coefficient

WisdomTree NASDAQ  WisdomTree Zinc

Poor diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree NASDAQ 100 and WisdomTree Zinc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Zinc 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 WisdomTree Zinc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Zinc has no effect on the direction of WisdomTree NASDAQ i.e., WisdomTree NASDAQ and WisdomTree Zinc go up and down completely randomly.

Pair Corralation between WisdomTree NASDAQ and WisdomTree Zinc

Assuming the 90 days trading horizon WisdomTree NASDAQ 100 is expected to generate 1.83 times more return on investment than WisdomTree Zinc. However, WisdomTree NASDAQ is 1.83 times more volatile than WisdomTree Zinc. It trades about 0.12 of its potential returns per unit of risk. WisdomTree Zinc is currently generating about 0.1 per unit of risk. If you would invest  19,385  in WisdomTree NASDAQ 100 on September 3, 2024 and sell it today you would earn a total of  4,640  from holding WisdomTree NASDAQ 100 or generate 23.94% return on investment over 90 days.

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

WisdomTree NASDAQ 100  vs.  WisdomTree Zinc

WisdomTree NASDAQ 100

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree NASDAQ 100 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree NASDAQ unveiled solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree Zinc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Zinc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree Zinc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with WisdomTree NASDAQ and WisdomTree Zinc

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

The idea behind WisdomTree NASDAQ 100 and WisdomTree Zinc 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.