Correlation Between WisdomTree SmallCap and WisdomTree Emerging

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

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

Diversification Opportunities for WisdomTree SmallCap and WisdomTree Emerging

0.58

Correlation Coefficient

WisdomTree SmallCap  WisdomTree Emerging

Very weak diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Dividend and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging and WisdomTree SmallCap 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 SmallCap Dividend are associated (or correlated) with WisdomTree Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between WisdomTree SmallCap and WisdomTree Emerging

Considering the 90-day investment horizon WisdomTree SmallCap Dividend is expected to under-perform the WisdomTree Emerging. In addition to that, WisdomTree SmallCap is 1.19 times more volatile than WisdomTree Emerging Markets. It trades about -0.23 of its total potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about -0.16 per unit of volatility. If you would invest  4,393  in WisdomTree Emerging Markets on March 14, 2024 and sell it today you would lose (109.00) from holding WisdomTree Emerging Markets or give up 2.48% of portfolio value over 90 days.

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

WisdomTree SmallCap Dividend  vs.  WisdomTree Emerging Markets

WisdomTree SmallCap

Risk-Adjusted Performance

0 of 100

Very Weak

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

WisdomTree Emerging

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Emerging Markets are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, WisdomTree Emerging is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree SmallCap and WisdomTree Emerging

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

The idea behind WisdomTree SmallCap Dividend and WisdomTree Emerging Markets 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.