Correlation Between WisdomTree High and IShares Edge

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

By analyzing existing cross correlation between WisdomTree High Yield and iShares Edge Investment, you can compare the effects of market volatilities on WisdomTree High and IShares Edge 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 WisdomTree High with a short position of IShares Edge. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree High and IShares Edge.

Diversification Opportunities for WisdomTree High and IShares Edge

0.4

Correlation Coefficient

WisdomTree High  IShares Edge

Very weak diversification

The 3 months correlation between WisdomTree and IShares is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree High Yield and iShares Edge Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge Investment and WisdomTree High 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 WisdomTree High Yield are associated (or correlated) with IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge Investment has no effect on the direction of WisdomTree High i.e., WisdomTree High and IShares Edge go up and down completely randomly.

Pair Corralation between WisdomTree High and IShares Edge

Given the investment horizon of 90 days WisdomTree High is expected to generate 1.26 times less return on investment than IShares Edge. But when comparing it to its historical volatility, WisdomTree High Yield is 1.07 times less risky than IShares Edge. It trades about 0.07 of its potential returns per unit of risk. iShares Edge Investment is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,407  in iShares Edge Investment on December 29, 2024 and sell it today you would earn a total of  64.00  from holding iShares Edge Investment or generate 1.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.16%
Values	Daily Returns

WisdomTree High Yield  vs.  iShares Edge Investment

WisdomTree High Yield

Risk-Adjusted Performance

Modest

Over the last 90 days WisdomTree High Yield has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, WisdomTree High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares Edge Investment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Edge Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, IShares Edge is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree High and IShares Edge

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

The idea behind WisdomTree High Yield and iShares Edge Investment 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.