Correlation Between Leverage Shares and WisdomTree NASDAQ

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

By analyzing existing cross correlation between Leverage Shares 3x and WisdomTree NASDAQ 100, you can compare the effects of market volatilities on Leverage Shares and WisdomTree NASDAQ 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 Leverage Shares with a short position of WisdomTree NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leverage Shares and WisdomTree NASDAQ.

Diversification Opportunities for Leverage Shares and WisdomTree NASDAQ

0.76

Correlation Coefficient

Leverage Shares  WisdomTree NASDAQ

Poor diversification

The 3 months correlation between Leverage and WisdomTree is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Leverage Shares 3x and WisdomTree NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree NASDAQ 100 and Leverage Shares 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 Leverage Shares 3x are associated (or correlated) with WisdomTree NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree NASDAQ 100 has no effect on the direction of Leverage Shares i.e., Leverage Shares and WisdomTree NASDAQ go up and down completely randomly.

Pair Corralation between Leverage Shares and WisdomTree NASDAQ

Assuming the 90 days trading horizon Leverage Shares 3x is expected to generate 4.13 times more return on investment than WisdomTree NASDAQ. However, Leverage Shares is 4.13 times more volatile than WisdomTree NASDAQ 100. It trades about 0.3 of its potential returns per unit of risk. WisdomTree NASDAQ 100 is currently generating about 0.12 per unit of risk. If you would invest  508,110  in Leverage Shares 3x on September 3, 2024 and sell it today you would earn a total of  3,243,965  from holding Leverage Shares 3x or generate 638.44% return on investment over 90 days.

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

Leverage Shares 3x  vs.  WisdomTree NASDAQ 100

Leverage Shares 3x

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Leverage Shares 3x are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Leverage Shares unveiled solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree NASDAQ 100

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree NASDAQ 100 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree NASDAQ unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leverage Shares and WisdomTree NASDAQ

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

The idea behind Leverage Shares 3x and WisdomTree NASDAQ 100 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.