Correlation Between WisdomTree and SP 500

Can any of the company-specific risk be diversified away by investing in both WisdomTree and SP 500 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 and SP 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for WisdomTree and SP 500

0.7

Correlation Coefficient

WisdomTree  SP 500

Poor diversification

The 3 months correlation between WisdomTree and VILX is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SP 500 and SP 500 VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 VIX and WisdomTree 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 SP 500 are associated (or correlated) with SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 VIX has no effect on the direction of WisdomTree i.e., WisdomTree and SP 500 go up and down completely randomly.

Pair Corralation between WisdomTree and SP 500

Assuming the 90 days trading horizon WisdomTree SP 500 is expected to generate 0.31 times more return on investment than SP 500. However, WisdomTree SP 500 is 3.22 times less risky than SP 500. It trades about -0.15 of its potential returns per unit of risk. SP 500 VIX is currently generating about -0.1 per unit of risk. If you would invest  161,450  in WisdomTree SP 500 on September 5, 2024 and sell it today you would lose (34,650) from holding WisdomTree SP 500 or give up 21.46% of portfolio value over 90 days.

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

WisdomTree SP 500  vs.  SP 500 VIX

WisdomTree SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

SP 500 VIX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SP 500 VIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with WisdomTree and SP 500

The main advantage of trading using opposite WisdomTree and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree position performs unexpectedly, SP 500 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 SP 500 will offset losses from the drop in SP 500's long position.

The idea behind WisdomTree SP 500 and SP 500 VIX 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.