Correlation Between VanEck Defense and WisdomTree

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

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

Diversification Opportunities for VanEck Defense and WisdomTree

0.71

Correlation Coefficient

VanEck Defense  WisdomTree

Poor diversification

The 3 months correlation between VanEck and WisdomTree is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Defense ETF and WisdomTree SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SP 500 and VanEck Defense 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 VanEck Defense ETF are associated (or correlated) with WisdomTree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SP 500 has no effect on the direction of VanEck Defense i.e., VanEck Defense and WisdomTree go up and down completely randomly.

Pair Corralation between VanEck Defense and WisdomTree

Assuming the 90 days trading horizon VanEck Defense is expected to generate 1.05 times less return on investment than WisdomTree. But when comparing it to its historical volatility, VanEck Defense ETF is 1.65 times less risky than WisdomTree. It trades about 0.14 of its potential returns per unit of risk. WisdomTree SP 500 is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,584  in WisdomTree SP 500 on September 25, 2024 and sell it today you would earn a total of  1,157  from holding WisdomTree SP 500 or generate 12.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

VanEck Defense ETF  vs.  WisdomTree SP 500

VanEck Defense ETF

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Defense ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, VanEck Defense may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree SP 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SP 500 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WisdomTree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VanEck Defense and WisdomTree

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

The idea behind VanEck Defense ETF and WisdomTree SP 500 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.