Correlation Between Vanguard Multifactor and WisdomTree Multifactor

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

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

Diversification Opportunities for Vanguard Multifactor and WisdomTree Multifactor

0.93

Correlation Coefficient

Vanguard Multifactor  WisdomTree Multifactor

Almost no diversification

The 3 months correlation between Vanguard and WisdomTree is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Multifactor and WisdomTree Multifactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Multifactor and Vanguard Multifactor 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 Multifactor are associated (or correlated) with WisdomTree Multifactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Multifactor has no effect on the direction of Vanguard Multifactor i.e., Vanguard Multifactor and WisdomTree Multifactor go up and down completely randomly.

Pair Corralation between Vanguard Multifactor and WisdomTree Multifactor

Given the investment horizon of 90 days Vanguard Multifactor is expected to generate 1.02 times less return on investment than WisdomTree Multifactor. In addition to that, Vanguard Multifactor is 1.42 times more volatile than WisdomTree Multifactor. It trades about 0.07 of its total potential returns per unit of risk. WisdomTree Multifactor is currently generating about 0.1 per unit of volatility. If you would invest  3,671  in WisdomTree Multifactor on September 20, 2024 and sell it today you would earn a total of  1,432  from holding WisdomTree Multifactor or generate 39.01% return on investment over 90 days.

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

Vanguard Multifactor  vs.  WisdomTree Multifactor

Vanguard Multifactor

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Multifactor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Vanguard Multifactor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

WisdomTree Multifactor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Multifactor are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, WisdomTree Multifactor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Multifactor and WisdomTree Multifactor

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

The idea behind Vanguard Multifactor and WisdomTree Multifactor 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.