Correlation Between Vanguard Dividend and WisdomTree Quality

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Can any of the company-specific risk be diversified away by investing in both Vanguard Dividend and WisdomTree Quality 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 Dividend and WisdomTree Quality into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Dividend Appreciation and WisdomTree Quality Dividend, you can compare the effects of market volatilities on Vanguard Dividend and WisdomTree Quality 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 Dividend with a short position of WisdomTree Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Dividend and WisdomTree Quality.

Diversification Opportunities for Vanguard Dividend and WisdomTree Quality

VanguardWisdomTreeDiversified AwayVanguardWisdomTreeDiversified Away100%
0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Vanguard and WisdomTree is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Dividend Appreciation and WisdomTree Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Quality and Vanguard Dividend 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 Dividend Appreciation are associated (or correlated) with WisdomTree Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Quality has no effect on the direction of Vanguard Dividend i.e., Vanguard Dividend and WisdomTree Quality go up and down completely randomly.

Pair Corralation between Vanguard Dividend and WisdomTree Quality

Considering the 90-day investment horizon Vanguard Dividend Appreciation is expected to generate 1.02 times more return on investment than WisdomTree Quality. However, Vanguard Dividend is 1.02 times more volatile than WisdomTree Quality Dividend. It trades about 0.07 of its potential returns per unit of risk. WisdomTree Quality Dividend is currently generating about 0.05 per unit of risk. If you would invest  19,497  in Vanguard Dividend Appreciation on September 18, 2024 and sell it today you would earn a total of  563.00  from holding Vanguard Dividend Appreciation or generate 2.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Vanguard Dividend Appreciation  vs.  WisdomTree Quality Dividend

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -1012345
JavaScript chart by amCharts 3.21.15VIG DGRW
       Timeline  
Vanguard Dividend 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Dividend Appreciation are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, Vanguard Dividend is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec194196198200202204206
WisdomTree Quality 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Quality Dividend are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, WisdomTree Quality is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec8282.58383.58484.58585.5

Vanguard Dividend and WisdomTree Quality Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.91-1.42-0.93-0.440.0083050.460.951.441.932.42 0.20.40.60.81.01.2
JavaScript chart by amCharts 3.21.15VIG DGRW
       Returns  

Pair Trading with Vanguard Dividend and WisdomTree Quality

The main advantage of trading using opposite Vanguard Dividend and WisdomTree Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Dividend position performs unexpectedly, WisdomTree Quality 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 Quality will offset losses from the drop in WisdomTree Quality's long position.
The idea behind Vanguard Dividend Appreciation and WisdomTree Quality Dividend 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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