Correlation Between WisdomTree SmallCap and Davis Select

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

By analyzing existing cross correlation between WisdomTree SmallCap Quality and Davis Select International, you can compare the effects of market volatilities on WisdomTree SmallCap and Davis Select 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 SmallCap with a short position of Davis Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree SmallCap and Davis Select.

Diversification Opportunities for WisdomTree SmallCap and Davis Select

-0.32

Correlation Coefficient

WisdomTree SmallCap  Davis Select

Very good diversification

The 3 months correlation between WisdomTree and Davis is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Quality and Davis Select International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Interna and WisdomTree SmallCap 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 SmallCap Quality are associated (or correlated) with Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Interna has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and Davis Select go up and down completely randomly.

Pair Corralation between WisdomTree SmallCap and Davis Select

Given the investment horizon of 90 days WisdomTree SmallCap Quality is expected to generate 1.15 times more return on investment than Davis Select. However, WisdomTree SmallCap is 1.15 times more volatile than Davis Select International. It trades about -0.22 of its potential returns per unit of risk. Davis Select International is currently generating about -0.51 per unit of risk. If you would invest  2,910  in WisdomTree SmallCap Quality on October 10, 2024 and sell it today you would lose (137.00) from holding WisdomTree SmallCap Quality or give up 4.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

WisdomTree SmallCap Quality  vs.  Davis Select International

WisdomTree SmallCap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Quality are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent primary indicators, WisdomTree SmallCap is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Davis Select Interna

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Select International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady 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.

Pair Trading with WisdomTree SmallCap and Davis Select

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

The idea behind WisdomTree SmallCap Quality and Davis Select International 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.