Correlation Between Vanguard FTSE and WisdomTree MidCap

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

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

Diversification Opportunities for Vanguard FTSE and WisdomTree MidCap

-0.38

Correlation Coefficient

Vanguard FTSE  WisdomTree MidCap

Very good diversification

The 3 months correlation between Vanguard and WisdomTree is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Pacific and WisdomTree MidCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree MidCap and Vanguard FTSE 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 FTSE Pacific are associated (or correlated) with WisdomTree MidCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree MidCap has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and WisdomTree MidCap go up and down completely randomly.

Pair Corralation between Vanguard FTSE and WisdomTree MidCap

Considering the 90-day investment horizon Vanguard FTSE is expected to generate 4.14 times less return on investment than WisdomTree MidCap. But when comparing it to its historical volatility, Vanguard FTSE Pacific is 1.25 times less risky than WisdomTree MidCap. It trades about 0.11 of its potential returns per unit of risk. WisdomTree MidCap Dividend is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  5,070  in WisdomTree MidCap Dividend on September 4, 2024 and sell it today you would earn a total of  430.00  from holding WisdomTree MidCap Dividend or generate 8.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Vanguard FTSE Pacific  vs.  WisdomTree MidCap Dividend

Vanguard FTSE Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Vanguard FTSE is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

WisdomTree MidCap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree MidCap Dividend are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, WisdomTree MidCap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard FTSE and WisdomTree MidCap

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

The idea behind Vanguard FTSE Pacific and WisdomTree MidCap 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.