Correlation Between WisdomTree Aluminium and WisdomTree

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

By analyzing existing cross correlation between WisdomTree Aluminium 2x and WisdomTree SP 500, you can compare the effects of market volatilities on WisdomTree Aluminium 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 WisdomTree Aluminium with a short position of WisdomTree. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Aluminium and WisdomTree.

Diversification Opportunities for WisdomTree Aluminium and WisdomTree

-0.7

Correlation Coefficient

WisdomTree Aluminium  WisdomTree

Excellent diversification

The 3 months correlation between WisdomTree and WisdomTree is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Aluminium 2x 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 WisdomTree Aluminium 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 WisdomTree Aluminium 2x 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 WisdomTree Aluminium i.e., WisdomTree Aluminium and WisdomTree go up and down completely randomly.

Pair Corralation between WisdomTree Aluminium and WisdomTree

Assuming the 90 days trading horizon WisdomTree Aluminium 2x is expected to generate 1.32 times more return on investment than WisdomTree. However, WisdomTree Aluminium is 1.32 times more volatile than WisdomTree SP 500. It trades about 0.07 of its potential returns per unit of risk. WisdomTree SP 500 is currently generating about -0.12 per unit of risk. If you would invest  192.00  in WisdomTree Aluminium 2x on September 3, 2024 and sell it today you would earn a total of  24.00  from holding WisdomTree Aluminium 2x or generate 12.5% return on investment over 90 days.

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

WisdomTree Aluminium 2x  vs.  WisdomTree SP 500

WisdomTree Aluminium

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Aluminium 2x are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree Aluminium unveiled solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with WisdomTree Aluminium and WisdomTree

The main advantage of trading using opposite WisdomTree Aluminium and WisdomTree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Aluminium 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 WisdomTree Aluminium 2x 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.

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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.