Correlation Between WisdomTree Earnings and IShares Small

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

By analyzing existing cross correlation between WisdomTree Earnings 500 and iShares Small Cap, you can compare the effects of market volatilities on WisdomTree Earnings and IShares Small 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 Earnings with a short position of IShares Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Earnings and IShares Small.

Diversification Opportunities for WisdomTree Earnings and IShares Small

0.68

Correlation Coefficient

WisdomTree Earnings  IShares Small

Poor diversification

The 3 months correlation between WisdomTree and IShares is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Earnings 500 and iShares Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Small Cap and WisdomTree Earnings 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 Earnings 500 are associated (or correlated) with IShares Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Small Cap has no effect on the direction of WisdomTree Earnings i.e., WisdomTree Earnings and IShares Small go up and down completely randomly.

Pair Corralation between WisdomTree Earnings and IShares Small

Considering the 90-day investment horizon WisdomTree Earnings 500 is expected to generate 0.61 times more return on investment than IShares Small. However, WisdomTree Earnings 500 is 1.63 times less risky than IShares Small. It trades about 0.11 of its potential returns per unit of risk. iShares Small Cap is currently generating about -0.2 per unit of risk. If you would invest  5,523  in WisdomTree Earnings 500 on March 12, 2024 and sell it today you would earn a total of  69.00  from holding WisdomTree Earnings 500 or generate 1.25% return on investment over 90 days.

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

WisdomTree Earnings 500  vs.  iShares Small Cap

WisdomTree Earnings 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Earnings 500 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, WisdomTree Earnings is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, IShares Small is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with WisdomTree Earnings and IShares Small

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

The idea behind WisdomTree Earnings 500 and iShares Small Cap 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.