Correlation Between SPDR Portfolio and WisdomTree MidCap

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

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

Diversification Opportunities for SPDR Portfolio and WisdomTree MidCap

0.5

Correlation Coefficient

SPDR Portfolio  WisdomTree MidCap

Very weak diversification

The 3 months correlation between SPDR and WisdomTree is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Aggregate and WisdomTree MidCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree MidCap and SPDR Portfolio 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 SPDR Portfolio Aggregate are associated (or correlated) with WisdomTree MidCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree MidCap has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and WisdomTree MidCap go up and down completely randomly.

Pair Corralation between SPDR Portfolio and WisdomTree MidCap

Given the investment horizon of 90 days SPDR Portfolio Aggregate is expected to generate 0.38 times more return on investment than WisdomTree MidCap. However, SPDR Portfolio Aggregate is 2.65 times less risky than WisdomTree MidCap. It trades about 0.05 of its potential returns per unit of risk. WisdomTree MidCap Dividend is currently generating about -0.12 per unit of risk. If you would invest  2,537  in SPDR Portfolio Aggregate on December 2, 2024 and sell it today you would earn a total of  25.00  from holding SPDR Portfolio Aggregate or generate 0.99% return on investment over 90 days.

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

SPDR Portfolio Aggregate  vs.  WisdomTree MidCap Dividend

SPDR Portfolio Aggregate

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio Aggregate are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, SPDR Portfolio is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

WisdomTree MidCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree MidCap Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, WisdomTree MidCap is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR Portfolio and WisdomTree MidCap

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

The idea behind SPDR Portfolio Aggregate and WisdomTree MidCap Dividend 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.