Correlation Between Vanguard and WisdomTree SmallCap

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

Diversification Opportunities for Vanguard and WisdomTree SmallCap

0.99

Correlation Coefficient

Vanguard  WisdomTree SmallCap

No risk reduction

The 3 months correlation between Vanguard and WisdomTree is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Small Cap and WisdomTree SmallCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap 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 SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of Vanguard i.e., Vanguard and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between Vanguard and WisdomTree SmallCap

Given the investment horizon of 90 days Vanguard SP Small Cap is expected to under-perform the WisdomTree SmallCap. In addition to that, Vanguard is 1.14 times more volatile than WisdomTree SmallCap Dividend. It trades about -0.14 of its total potential returns per unit of risk. WisdomTree SmallCap Dividend is currently generating about -0.1 per unit of volatility. If you would invest  3,400  in WisdomTree SmallCap Dividend on December 30, 2024 and sell it today you would lose (208.00) from holding WisdomTree SmallCap Dividend or give up 6.12% of portfolio value over 90 days.

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

Vanguard SP Small Cap  vs.  WisdomTree SmallCap Dividend

Vanguard SP Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

WisdomTree SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree SmallCap Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, WisdomTree SmallCap is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard and WisdomTree SmallCap

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

The idea behind Vanguard SP Small Cap and WisdomTree SmallCap 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.