Correlation Between WisdomTree Natural and Xtrackers FTSE

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

By analyzing existing cross correlation between WisdomTree Natural Gas and Xtrackers FTSE 250, you can compare the effects of market volatilities on WisdomTree Natural and Xtrackers FTSE 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 Natural with a short position of Xtrackers FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Natural and Xtrackers FTSE.

Diversification Opportunities for WisdomTree Natural and Xtrackers FTSE

-0.18

Correlation Coefficient

WisdomTree Natural  Xtrackers FTSE

Good diversification

The 3 months correlation between WisdomTree and Xtrackers is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Natural Gas and Xtrackers FTSE 250 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers FTSE 250 and WisdomTree Natural 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 Natural Gas are associated (or correlated) with Xtrackers FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers FTSE 250 has no effect on the direction of WisdomTree Natural i.e., WisdomTree Natural and Xtrackers FTSE go up and down completely randomly.

Pair Corralation between WisdomTree Natural and Xtrackers FTSE

Assuming the 90 days trading horizon WisdomTree Natural Gas is expected to generate 13.17 times more return on investment than Xtrackers FTSE. However, WisdomTree Natural is 13.17 times more volatile than Xtrackers FTSE 250. It trades about 0.01 of its potential returns per unit of risk. Xtrackers FTSE 250 is currently generating about 0.02 per unit of risk. If you would invest  753,050  in WisdomTree Natural Gas on September 13, 2024 and sell it today you would lose (162,180) from holding WisdomTree Natural Gas or give up 21.54% of portfolio value over 90 days.

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

WisdomTree Natural Gas  vs.  Xtrackers FTSE 250

WisdomTree Natural Gas

Risk-Adjusted Performance

0 of 100

Very Weak

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

Xtrackers FTSE 250

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Xtrackers FTSE 250 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Xtrackers FTSE is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with WisdomTree Natural and Xtrackers FTSE

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

The idea behind WisdomTree Natural Gas and Xtrackers FTSE 250 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.