Correlation Between SWP Growth and WisdomTree Emerging

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

By analyzing existing cross correlation between SWP Growth Income and WisdomTree Emerging Markets, you can compare the effects of market volatilities on SWP Growth and WisdomTree Emerging 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 SWP Growth with a short position of WisdomTree Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of SWP Growth and WisdomTree Emerging.

Diversification Opportunities for SWP Growth and WisdomTree Emerging

-0.16

Correlation Coefficient

SWP Growth  WisdomTree Emerging

Good diversification

The 3 months correlation between SWP and WisdomTree is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding SWP Growth Income and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging and SWP Growth 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 SWP Growth Income are associated (or correlated) with WisdomTree Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of SWP Growth i.e., SWP Growth and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between SWP Growth and WisdomTree Emerging

Considering the 90-day investment horizon SWP Growth Income is expected to under-perform the WisdomTree Emerging. In addition to that, SWP Growth is 1.09 times more volatile than WisdomTree Emerging Markets. It trades about -0.04 of its total potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about 0.09 per unit of volatility. If you would invest  2,529  in WisdomTree Emerging Markets on December 27, 2024 and sell it today you would earn a total of  99.00  from holding WisdomTree Emerging Markets or generate 3.91% return on investment over 90 days.

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

SWP Growth Income  vs.  WisdomTree Emerging Markets

SWP Growth Income

Risk-Adjusted Performance

Very Weak

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

WisdomTree Emerging

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Emerging Markets are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, WisdomTree Emerging is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SWP Growth and WisdomTree Emerging

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

The idea behind SWP Growth Income and WisdomTree Emerging Markets 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.