Correlation Between WisdomTree Yield and IShares Edge

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

By analyzing existing cross correlation between WisdomTree Yield Enhanced and iShares Edge Investment, you can compare the effects of market volatilities on WisdomTree Yield and IShares Edge 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 Yield with a short position of IShares Edge. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Yield and IShares Edge.

Diversification Opportunities for WisdomTree Yield and IShares Edge

0.93

Correlation Coefficient

WisdomTree Yield  IShares Edge

Almost no diversification

The 3 months correlation between WisdomTree and IShares is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Yield Enhanced and iShares Edge Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge Investment and WisdomTree Yield 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 Yield Enhanced are associated (or correlated) with IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge Investment has no effect on the direction of WisdomTree Yield i.e., WisdomTree Yield and IShares Edge go up and down completely randomly.

Pair Corralation between WisdomTree Yield and IShares Edge

Given the investment horizon of 90 days WisdomTree Yield is expected to generate 1.63 times less return on investment than IShares Edge. But when comparing it to its historical volatility, WisdomTree Yield Enhanced is 2.51 times less risky than IShares Edge. It trades about 0.19 of its potential returns per unit of risk. iShares Edge Investment is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,467  in iShares Edge Investment on September 17, 2024 and sell it today you would earn a total of  37.00  from holding iShares Edge Investment or generate 0.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

WisdomTree Yield Enhanced  vs.  iShares Edge Investment

WisdomTree Yield Enhanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Yield Enhanced has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, WisdomTree Yield is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares Edge Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Edge Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, IShares Edge is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree Yield and IShares Edge

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

The idea behind WisdomTree Yield Enhanced and iShares Edge Investment 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.