Correlation Between Vanguard Large and WisdomTree Earnings

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

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

Diversification Opportunities for Vanguard Large and WisdomTree Earnings

0.94

Correlation Coefficient

Vanguard Large  WisdomTree Earnings

Almost no diversification

The 3 months correlation between Vanguard and WisdomTree is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index and WisdomTree Earnings 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Earnings 500 and Vanguard Large 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 Vanguard Large Cap Index are associated (or correlated) with WisdomTree Earnings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Earnings 500 has no effect on the direction of Vanguard Large i.e., Vanguard Large and WisdomTree Earnings go up and down completely randomly.

Pair Corralation between Vanguard Large and WisdomTree Earnings

Allowing for the 90-day total investment horizon Vanguard Large Cap Index is expected to generate 1.06 times more return on investment than WisdomTree Earnings. However, Vanguard Large is 1.06 times more volatile than WisdomTree Earnings 500. It trades about 0.06 of its potential returns per unit of risk. WisdomTree Earnings 500 is currently generating about 0.05 per unit of risk. If you would invest  17,616  in Vanguard Large Cap Index on January 28, 2024 and sell it today you would earn a total of  5,738  from holding Vanguard Large Cap Index or generate 32.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.8%
Values	Daily Returns

Vanguard Large Cap Index  vs.  WisdomTree Earnings 500

Vanguard Large Cap

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Large Cap Index are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Large is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

WisdomTree Earnings 500

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Earnings 500 are ranked lower than 7 (%) 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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Large and WisdomTree Earnings

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

The idea behind Vanguard Large Cap Index and WisdomTree Earnings 500 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.