Correlation Between WisdomTree International and Dimensional ETF

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

Diversification Opportunities for WisdomTree International and Dimensional ETF

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between WisdomTree and Dimensional is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International MidCa and Dimensional ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional ETF Trust and WisdomTree International 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 International MidCap are associated (or correlated) with Dimensional ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional ETF Trust has no effect on the direction of WisdomTree International i.e., WisdomTree International and Dimensional ETF go up and down completely randomly.

Pair Corralation between WisdomTree International and Dimensional ETF

Considering the 90-day investment horizon WisdomTree International MidCap is expected to under-perform the Dimensional ETF. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree International MidCap is 1.19 times less risky than Dimensional ETF. The etf trades about -0.18 of its potential returns per unit of risk. The Dimensional ETF Trust is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  2,788  in Dimensional ETF Trust on March 27, 2024 and sell it today you would lose (78.00) from holding Dimensional ETF Trust or give up 2.8% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

WisdomTree International MidCa  vs.  Dimensional ETF Trust

 Performance 
       Timeline  
WisdomTree International 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days WisdomTree International MidCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, WisdomTree International is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.
Dimensional ETF Trust 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional ETF Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Dimensional ETF is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

WisdomTree International and Dimensional ETF Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with WisdomTree International and Dimensional ETF

The main advantage of trading using opposite WisdomTree International and Dimensional ETF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree International position performs unexpectedly, Dimensional ETF 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 Dimensional ETF will offset losses from the drop in Dimensional ETF's long position.
The idea behind WisdomTree International MidCap and Dimensional ETF Trust 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.
Check out your portfolio center.
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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