Correlation Between Vanguard and WisdomTree Equity

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

By analyzing existing cross correlation between Vanguard SP 500 and WisdomTree Equity Income, you can compare the effects of market volatilities on Vanguard and WisdomTree Equity 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 Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and WisdomTree Equity.

Diversification Opportunities for Vanguard and WisdomTree Equity

0.96

Correlation Coefficient

Vanguard  WisdomTree Equity

Almost no diversification

The 3 months correlation between Vanguard and WisdomTree is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and WisdomTree Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Equity Income 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 500 are associated (or correlated) with WisdomTree Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Equity Income has no effect on the direction of Vanguard i.e., Vanguard and WisdomTree Equity go up and down completely randomly.

Pair Corralation between Vanguard and WisdomTree Equity

Assuming the 90 days trading horizon Vanguard SP 500 is expected to generate 1.59 times more return on investment than WisdomTree Equity. However, Vanguard is 1.59 times more volatile than WisdomTree Equity Income. It trades about 0.25 of its potential returns per unit of risk. WisdomTree Equity Income is currently generating about 0.24 per unit of risk. If you would invest  8,999  in Vanguard SP 500 on September 14, 2024 and sell it today you would earn a total of  1,221  from holding Vanguard SP 500 or generate 13.57% return on investment over 90 days.

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

Vanguard SP 500  vs.  WisdomTree Equity Income

Vanguard SP 500

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Vanguard showed solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree Equity Income

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Equity Income are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, WisdomTree Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard and WisdomTree Equity

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

The idea behind Vanguard SP 500 and WisdomTree Equity Income 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.