Correlation Between MicroSectors FANG and WisdomTree Global

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

By analyzing existing cross correlation between MicroSectors FANG Index and WisdomTree Global ex US, you can compare the effects of market volatilities on MicroSectors FANG and WisdomTree Global 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 MicroSectors FANG with a short position of WisdomTree Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and WisdomTree Global.

Diversification Opportunities for MicroSectors FANG and WisdomTree Global

-0.61

Correlation Coefficient

MicroSectors FANG  WisdomTree Global

Excellent diversification

The 3 months correlation between MicroSectors and WisdomTree is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and WisdomTree Global ex US in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Global and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with WisdomTree Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Global has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and WisdomTree Global go up and down completely randomly.

Pair Corralation between MicroSectors FANG and WisdomTree Global

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 2.91 times more return on investment than WisdomTree Global. However, MicroSectors FANG is 2.91 times more volatile than WisdomTree Global ex US. It trades about 0.17 of its potential returns per unit of risk. WisdomTree Global ex US is currently generating about -0.06 per unit of risk. If you would invest  6,342  in MicroSectors FANG Index on September 2, 2024 and sell it today you would earn a total of  1,977  from holding MicroSectors FANG Index or generate 31.17% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  WisdomTree Global ex US

MicroSectors FANG Index

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, MicroSectors FANG displayed solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Global ex US has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, WisdomTree Global is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with MicroSectors FANG and WisdomTree Global

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

The idea behind MicroSectors FANG Index and WisdomTree Global ex US 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.