Correlation Between WisdomTree and Invesco Mortgage

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

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

Diversification Opportunities for WisdomTree and Invesco Mortgage

-0.32

Correlation Coefficient

WisdomTree  Invesco Mortgage

Very good diversification

The 3 months correlation between WisdomTree and Invesco is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree and Invesco Mortgage Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Mortgage Capital and WisdomTree 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 are associated (or correlated) with Invesco Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Mortgage Capital has no effect on the direction of WisdomTree i.e., WisdomTree and Invesco Mortgage go up and down completely randomly.

Pair Corralation between WisdomTree and Invesco Mortgage

Allowing for the 90-day total investment horizon WisdomTree is expected to under-perform the Invesco Mortgage. In addition to that, WisdomTree is 1.12 times more volatile than Invesco Mortgage Capital. It trades about -0.37 of its total potential returns per unit of risk. Invesco Mortgage Capital is currently generating about -0.04 per unit of volatility. If you would invest  818.00  in Invesco Mortgage Capital on October 10, 2024 and sell it today you would lose (12.00) from holding Invesco Mortgage Capital or give up 1.47% of portfolio value over 90 days.

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

WisdomTree  vs.  Invesco Mortgage Capital

WisdomTree

Risk-Adjusted Performance

0 of 100

Very Weak

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

Invesco Mortgage Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Mortgage Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Invesco Mortgage is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with WisdomTree and Invesco Mortgage

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

The idea behind WisdomTree and Invesco Mortgage Capital 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.