Correlation Between ProShares and WisdomTree SmallCap

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

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

Diversification Opportunities for ProShares and WisdomTree SmallCap

0.92

Correlation Coefficient

ProShares  WisdomTree SmallCap

Almost no diversification

The 3 months correlation between ProShares and WisdomTree is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP MidCap and WisdomTree SmallCap Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap and ProShares 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 ProShares SP MidCap are associated (or correlated) with WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of ProShares i.e., ProShares and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between ProShares and WisdomTree SmallCap

Given the investment horizon of 90 days ProShares SP MidCap is expected to generate 0.91 times more return on investment than WisdomTree SmallCap. However, ProShares SP MidCap is 1.1 times less risky than WisdomTree SmallCap. It trades about -0.34 of its potential returns per unit of risk. WisdomTree SmallCap Earnings is currently generating about -0.33 per unit of risk. If you would invest  8,515  in ProShares SP MidCap on October 12, 2024 and sell it today you would lose (540.00) from holding ProShares SP MidCap or give up 6.34% of portfolio value over 90 days.

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

ProShares SP MidCap  vs.  WisdomTree SmallCap Earnings

ProShares SP MidCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares SP MidCap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, ProShares is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

WisdomTree SmallCap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Earnings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, WisdomTree SmallCap is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ProShares and WisdomTree SmallCap

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

The idea behind ProShares SP MidCap and WisdomTree SmallCap Earnings 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.