Correlation Between WisdomTree Emerging and IndexIQ

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Can any of the company-specific risk be diversified away by investing in both WisdomTree Emerging and IndexIQ 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 IndexIQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree Emerging Currency and IndexIQ, you can compare the effects of market volatilities on WisdomTree Emerging and IndexIQ 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 IndexIQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Emerging and IndexIQ.

Diversification Opportunities for WisdomTree Emerging and IndexIQ

0.26
  Correlation Coefficient

Modest diversification

The 3 months correlation between WisdomTree and IndexIQ is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Emerging Currency and IndexIQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IndexIQ 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 Currency are associated (or correlated) with IndexIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IndexIQ has no effect on the direction of WisdomTree Emerging i.e., WisdomTree Emerging and IndexIQ go up and down completely randomly.

Pair Corralation between WisdomTree Emerging and IndexIQ

Considering the 90-day investment horizon WisdomTree Emerging is expected to generate 3.77 times less return on investment than IndexIQ. In addition to that, WisdomTree Emerging is 1.08 times more volatile than IndexIQ. It trades about 0.04 of its total potential returns per unit of risk. IndexIQ is currently generating about 0.16 per unit of volatility. If you would invest  2,460  in IndexIQ on March 21, 2024 and sell it today you would earn a total of  116.00  from holding IndexIQ or generate 4.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy26.86%
ValuesDaily Returns

WisdomTree Emerging Currency  vs.  IndexIQ

 Performance 
       Timeline  
WisdomTree Emerging 

Risk-Adjusted Performance

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Strong
Very Weak
Over the last 90 days WisdomTree Emerging Currency has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, WisdomTree Emerging is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
IndexIQ 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days IndexIQ has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, IndexIQ is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

WisdomTree Emerging and IndexIQ Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with WisdomTree Emerging and IndexIQ

The main advantage of trading using opposite WisdomTree Emerging and IndexIQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Emerging position performs unexpectedly, IndexIQ 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 IndexIQ will offset losses from the drop in IndexIQ's long position.
The idea behind WisdomTree Emerging Currency and IndexIQ 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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