Correlation Between Avantis Small and WisdomTree SmallCap

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

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

Diversification Opportunities for Avantis Small and WisdomTree SmallCap

1.0

Correlation Coefficient

Avantis Small  WisdomTree SmallCap

No risk reduction

The 3 months correlation between Avantis and WisdomTree is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Avantis Small Cap and WisdomTree SmallCap Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap and Avantis Small 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 Avantis Small Cap are associated (or correlated) with WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of Avantis Small i.e., Avantis Small and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between Avantis Small and WisdomTree SmallCap

Given the investment horizon of 90 days Avantis Small Cap is expected to generate 1.08 times more return on investment than WisdomTree SmallCap. However, Avantis Small is 1.08 times more volatile than WisdomTree SmallCap Quality. It trades about 0.15 of its potential returns per unit of risk. WisdomTree SmallCap Quality is currently generating about 0.16 per unit of risk. If you would invest  9,283  in Avantis Small Cap on September 2, 2024 and sell it today you would earn a total of  1,266  from holding Avantis Small Cap or generate 13.64% return on investment over 90 days.

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

Avantis Small Cap  vs.  WisdomTree SmallCap Quality

Avantis Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis Small Cap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Avantis Small showed solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree SmallCap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Quality are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, WisdomTree SmallCap unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avantis Small and WisdomTree SmallCap

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

The idea behind Avantis Small Cap and WisdomTree SmallCap Quality 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.