Correlation Between Vanguard and WisdomTree Multifactor

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

Diversification Opportunities for Vanguard and WisdomTree Multifactor

0.94

Correlation Coefficient

Vanguard  WisdomTree Multifactor

Almost no diversification

The 3 months correlation between Vanguard and WisdomTree is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Small Cap and WisdomTree Multifactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Multifactor and Vanguard 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 SP Small Cap 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 i.e., Vanguard and WisdomTree Multifactor go up and down completely randomly.

Pair Corralation between Vanguard and WisdomTree Multifactor

Given the investment horizon of 90 days Vanguard is expected to generate 1.13 times less return on investment than WisdomTree Multifactor. In addition to that, Vanguard is 1.85 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 0.14 per unit of volatility. If you would invest  3,581  in WisdomTree Multifactor on September 19, 2024 and sell it today you would earn a total of  1,522  from holding WisdomTree Multifactor or generate 42.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.75%
Values	Daily Returns

Vanguard SP Small Cap  vs.  WisdomTree Multifactor

Vanguard SP Small

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Small Cap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Vanguard is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

WisdomTree Multifactor

Risk-Adjusted Performance

10 of 100

Good

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 and WisdomTree Multifactor

The main advantage of trading using opposite Vanguard and WisdomTree Multifactor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 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 SP Small Cap 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.

Check out your portfolio center.

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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.