Correlation Between WisdomTree Yield and FlexShares Credit

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

Diversification Opportunities for WisdomTree Yield and FlexShares Credit

0.89

Correlation Coefficient

WisdomTree Yield  FlexShares Credit

Very poor diversification

The 3 months correlation between WisdomTree and FlexShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Yield Enhanced and FlexShares Credit Scored Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Credit 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 FlexShares Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Credit has no effect on the direction of WisdomTree Yield i.e., WisdomTree Yield and FlexShares Credit go up and down completely randomly.

Pair Corralation between WisdomTree Yield and FlexShares Credit

Given the investment horizon of 90 days WisdomTree Yield Enhanced is expected to generate 0.2 times more return on investment than FlexShares Credit. However, WisdomTree Yield Enhanced is 4.9 times less risky than FlexShares Credit. It trades about -0.05 of its potential returns per unit of risk. FlexShares Credit Scored Long is currently generating about -0.12 per unit of risk. If you would invest  4,762  in WisdomTree Yield Enhanced on September 17, 2024 and sell it today you would lose (18.50) from holding WisdomTree Yield Enhanced or give up 0.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

WisdomTree Yield Enhanced  vs.  FlexShares Credit Scored Long

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.

FlexShares Credit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares Credit Scored Long has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, FlexShares Credit is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with WisdomTree Yield and FlexShares Credit

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

The idea behind WisdomTree Yield Enhanced and FlexShares Credit Scored Long 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.