Correlation Between IShares Core and WisdomTree Carbon

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

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

Diversification Opportunities for IShares Core and WisdomTree Carbon

0.66

Correlation Coefficient

IShares Core  WisdomTree Carbon

Poor diversification

The 3 months correlation between IShares and WisdomTree is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and WisdomTree Carbon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Carbon and IShares Core 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 Core SP are associated (or correlated) with WisdomTree Carbon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Carbon has no effect on the direction of IShares Core i.e., IShares Core and WisdomTree Carbon go up and down completely randomly.

Pair Corralation between IShares Core and WisdomTree Carbon

Assuming the 90 days trading horizon iShares Core SP is expected to generate 0.52 times more return on investment than WisdomTree Carbon. However, iShares Core SP is 1.91 times less risky than WisdomTree Carbon. It trades about 0.11 of its potential returns per unit of risk. WisdomTree Carbon is currently generating about -0.02 per unit of risk. If you would invest  53,778  in iShares Core SP on September 19, 2024 and sell it today you would earn a total of  7,314  from holding iShares Core SP or generate 13.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.22%
Values	Daily Returns

iShares Core SP  vs.  WisdomTree Carbon

iShares Core SP

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree Carbon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Carbon has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, WisdomTree Carbon is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Core and WisdomTree Carbon

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

The idea behind iShares Core SP and WisdomTree Carbon 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.