Correlation Between Vanguard Small and WisdomTree New

Can any of the company-specific risk be diversified away by investing in both Vanguard Small and WisdomTree New 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 New 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 New Economy, you can compare the effects of market volatilities on Vanguard Small and WisdomTree New 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 New. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and WisdomTree New.

Diversification Opportunities for Vanguard Small and WisdomTree New

0.5

Correlation Coefficient

Vanguard Small  WisdomTree New

Very weak diversification

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

Pair Corralation between Vanguard Small and WisdomTree New

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the WisdomTree New. In addition to that, Vanguard Small is 1.84 times more volatile than WisdomTree New Economy. It trades about -0.34 of its total potential returns per unit of risk. WisdomTree New Economy is currently generating about 0.23 per unit of volatility. If you would invest  1,732  in WisdomTree New Economy on December 5, 2024 and sell it today you would earn a total of  50.00  from holding WisdomTree New Economy or generate 2.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Vanguard Small Cap Index  vs.  WisdomTree New Economy

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

WisdomTree New Economy

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Vanguard Small and WisdomTree New

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

The idea behind Vanguard Small Cap Index and WisdomTree New Economy 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.