Correlation Between IShares SP and WisdomTree Trust

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

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

Diversification Opportunities for IShares SP and WisdomTree Trust

1.0

Correlation Coefficient

IShares SP  WisdomTree Trust

No risk reduction

The 3 months correlation between IShares and WisdomTree is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and WisdomTree Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Trust and IShares SP 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 iShares SP 500 are associated (or correlated) with WisdomTree Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Trust has no effect on the direction of IShares SP i.e., IShares SP and WisdomTree Trust go up and down completely randomly.

Pair Corralation between IShares SP and WisdomTree Trust

Considering the 90-day investment horizon IShares SP is expected to generate 1.17 times less return on investment than WisdomTree Trust. But when comparing it to its historical volatility, iShares SP 500 is 1.09 times less risky than WisdomTree Trust. It trades about 0.11 of its potential returns per unit of risk. WisdomTree Trust is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,455  in WisdomTree Trust on August 30, 2024 and sell it today you would earn a total of  384.00  from holding WisdomTree Trust or generate 8.62% return on investment over 90 days.

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

iShares SP 500  vs.  WisdomTree Trust

iShares SP 500

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

WisdomTree Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, WisdomTree Trust may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares SP and WisdomTree Trust

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

The idea behind iShares SP 500 and WisdomTree Trust 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.