Correlation Between WisdomTree High and WisdomTree Corporate

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

Diversification Opportunities for WisdomTree High and WisdomTree Corporate

0.7

Correlation Coefficient

WisdomTree High  WisdomTree Corporate

Poor diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree High Yield and WisdomTree Corporate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Corporate Bond 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 WisdomTree Corporate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Corporate Bond has no effect on the direction of WisdomTree High i.e., WisdomTree High and WisdomTree Corporate go up and down completely randomly.

Pair Corralation between WisdomTree High and WisdomTree Corporate

Given the investment horizon of 90 days WisdomTree High is expected to generate 1.42 times less return on investment than WisdomTree Corporate. But when comparing it to its historical volatility, WisdomTree High Yield is 1.11 times less risky than WisdomTree Corporate. It trades about 0.07 of its potential returns per unit of risk. WisdomTree Corporate Bond is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,395  in WisdomTree Corporate Bond on December 30, 2024 and sell it today you would earn a total of  65.00  from holding WisdomTree Corporate Bond or generate 1.48% return on investment over 90 days.

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

WisdomTree High Yield  vs.  WisdomTree Corporate Bond

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.

WisdomTree Corporate Bond

Risk-Adjusted Performance

Modest

Over the last 90 days WisdomTree Corporate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, WisdomTree Corporate is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with WisdomTree High and WisdomTree Corporate

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

The idea behind WisdomTree High Yield and WisdomTree Corporate Bond 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.