Correlation Between Vanguard Small and WisdomTree Issuer

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

By analyzing existing cross correlation between Vanguard Small Cap Index and WisdomTree Issuer ICAV, you can compare the effects of market volatilities on Vanguard Small and WisdomTree Issuer 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 Vanguard Small with a short position of WisdomTree Issuer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and WisdomTree Issuer.

Diversification Opportunities for Vanguard Small and WisdomTree Issuer

0.88

Correlation Coefficient

Vanguard Small  WisdomTree Issuer

Very poor diversification

The 3 months correlation between Vanguard and WisdomTree is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and WisdomTree Issuer ICAV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Issuer ICAV and Vanguard Small 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 Vanguard Small Cap Index are associated (or correlated) with WisdomTree Issuer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Issuer ICAV has no effect on the direction of Vanguard Small i.e., Vanguard Small and WisdomTree Issuer go up and down completely randomly.

Pair Corralation between Vanguard Small and WisdomTree Issuer

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 0.8 times more return on investment than WisdomTree Issuer. However, Vanguard Small Cap Index is 1.24 times less risky than WisdomTree Issuer. It trades about 0.18 of its potential returns per unit of risk. WisdomTree Issuer ICAV is currently generating about -0.06 per unit of risk. If you would invest  24,631  in Vanguard Small Cap Index on September 16, 2024 and sell it today you would earn a total of  695.00  from holding Vanguard Small Cap Index or generate 2.82% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  WisdomTree Issuer ICAV

Vanguard Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree Issuer ICAV

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Issuer ICAV are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, WisdomTree Issuer is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Small and WisdomTree Issuer

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

The idea behind Vanguard Small Cap Index and WisdomTree Issuer ICAV 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.