Correlation Between WisdomTree Emerging and Vanguard Value

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

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

Diversification Opportunities for WisdomTree Emerging and Vanguard Value

-0.38

Correlation Coefficient

WisdomTree Emerging  Vanguard Value

Very good diversification

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

Pair Corralation between WisdomTree Emerging and Vanguard Value

Allowing for the 90-day total investment horizon WisdomTree Emerging Markets is expected to under-perform the Vanguard Value. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree Emerging Markets is 1.28 times less risky than Vanguard Value. The etf trades about -0.02 of its potential returns per unit of risk. The Vanguard Value Factor is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  11,791  in Vanguard Value Factor on September 1, 2024 and sell it today you would earn a total of  1,105  from holding Vanguard Value Factor or generate 9.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

WisdomTree Emerging Markets  vs.  Vanguard Value Factor

WisdomTree Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Emerging Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, WisdomTree Emerging is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard Value Factor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Factor are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Vanguard Value may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with WisdomTree Emerging and Vanguard Value

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

The idea behind WisdomTree Emerging Markets and Vanguard Value Factor 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.