Correlation Between Legal General and WisdomTree Natural

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

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

Diversification Opportunities for Legal General and WisdomTree Natural

0.06

Correlation Coefficient

Legal General  WisdomTree Natural

Significant diversification

The 3 months correlation between Legal and WisdomTree is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Legal General UCITS and WisdomTree Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Natural Gas and Legal General 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 Legal General UCITS are associated (or correlated) with WisdomTree Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Natural Gas has no effect on the direction of Legal General i.e., Legal General and WisdomTree Natural go up and down completely randomly.

Pair Corralation between Legal General and WisdomTree Natural

Assuming the 90 days trading horizon Legal General UCITS is expected to generate 0.99 times more return on investment than WisdomTree Natural. However, Legal General UCITS is 1.01 times less risky than WisdomTree Natural. It trades about 0.12 of its potential returns per unit of risk. WisdomTree Natural Gas is currently generating about 0.04 per unit of risk. If you would invest  1,256  in Legal General UCITS on September 13, 2024 and sell it today you would earn a total of  310.00  from holding Legal General UCITS or generate 24.68% return on investment over 90 days.

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

Legal General UCITS  vs.  WisdomTree Natural Gas

Legal General UCITS

Risk-Adjusted Performance

9 of 100

OK

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

WisdomTree Natural Gas

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Natural Gas are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree Natural may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Legal General and WisdomTree Natural

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

The idea behind Legal General UCITS and WisdomTree Natural Gas 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.