Correlation Between IPath Bloomberg and WisdomTree Continuous

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

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

Diversification Opportunities for IPath Bloomberg and WisdomTree Continuous

0.92

Correlation Coefficient

IPath Bloomberg  WisdomTree Continuous

Almost no diversification

The 3 months correlation between IPath and WisdomTree is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iPath Bloomberg Commodity and WisdomTree Continuous Commodit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Continuous and IPath Bloomberg 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 iPath Bloomberg Commodity are associated (or correlated) with WisdomTree Continuous. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Continuous has no effect on the direction of IPath Bloomberg i.e., IPath Bloomberg and WisdomTree Continuous go up and down completely randomly.

Pair Corralation between IPath Bloomberg and WisdomTree Continuous

Considering the 90-day investment horizon IPath Bloomberg is expected to generate 1.25 times less return on investment than WisdomTree Continuous. In addition to that, IPath Bloomberg is 1.1 times more volatile than WisdomTree Continuous Commodity. It trades about 0.05 of its total potential returns per unit of risk. WisdomTree Continuous Commodity is currently generating about 0.08 per unit of volatility. If you would invest  1,809  in WisdomTree Continuous Commodity on August 30, 2024 and sell it today you would earn a total of  73.00  from holding WisdomTree Continuous Commodity or generate 4.04% return on investment over 90 days.

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

iPath Bloomberg Commodity  vs.  WisdomTree Continuous Commodit

iPath Bloomberg Commodity

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iPath Bloomberg Commodity are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking indicators, IPath Bloomberg is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

WisdomTree Continuous

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Continuous Commodity are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, WisdomTree Continuous is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IPath Bloomberg and WisdomTree Continuous

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

The idea behind iPath Bloomberg Commodity and WisdomTree Continuous Commodity 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.