Correlation Between IShares Semiconductor and WisdomTree Cybersecurity

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

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

Diversification Opportunities for IShares Semiconductor and WisdomTree Cybersecurity

0.43

Correlation Coefficient

IShares Semiconductor  WisdomTree Cybersecurity

Very weak diversification

The 3 months correlation between IShares and WisdomTree is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding iShares Semiconductor ETF and WisdomTree Cybersecurity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Cybersecurity and IShares Semiconductor 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 iShares Semiconductor ETF are associated (or correlated) with WisdomTree Cybersecurity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Cybersecurity has no effect on the direction of IShares Semiconductor i.e., IShares Semiconductor and WisdomTree Cybersecurity go up and down completely randomly.

Pair Corralation between IShares Semiconductor and WisdomTree Cybersecurity

Given the investment horizon of 90 days iShares Semiconductor ETF is expected to under-perform the WisdomTree Cybersecurity. In addition to that, IShares Semiconductor is 1.17 times more volatile than WisdomTree Cybersecurity. It trades about -0.07 of its total potential returns per unit of risk. WisdomTree Cybersecurity is currently generating about -0.01 per unit of volatility. If you would invest  2,895  in WisdomTree Cybersecurity on December 22, 2024 and sell it today you would lose (55.00) from holding WisdomTree Cybersecurity or give up 1.9% of portfolio value over 90 days.

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

iShares Semiconductor ETF  vs.  WisdomTree Cybersecurity

iShares Semiconductor ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Semiconductor ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

WisdomTree Cybersecurity

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree Cybersecurity has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, WisdomTree Cybersecurity 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 IShares Semiconductor and WisdomTree Cybersecurity

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

The idea behind iShares Semiconductor ETF and WisdomTree Cybersecurity 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.