Correlation Between WisdomTree NASDAQ and Xtrackers

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

By analyzing existing cross correlation between WisdomTree NASDAQ 100 and Xtrackers SP 500, you can compare the effects of market volatilities on WisdomTree NASDAQ and Xtrackers 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 NASDAQ with a short position of Xtrackers. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree NASDAQ and Xtrackers.

Diversification Opportunities for WisdomTree NASDAQ and Xtrackers

0.98

Correlation Coefficient

WisdomTree NASDAQ  Xtrackers

Almost no diversification

The 3 months correlation between WisdomTree and Xtrackers is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree NASDAQ 100 and Xtrackers SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 500 and WisdomTree NASDAQ 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 NASDAQ 100 are associated (or correlated) with Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP 500 has no effect on the direction of WisdomTree NASDAQ i.e., WisdomTree NASDAQ and Xtrackers go up and down completely randomly.

Pair Corralation between WisdomTree NASDAQ and Xtrackers

Assuming the 90 days trading horizon WisdomTree NASDAQ 100 is expected to generate 2.11 times more return on investment than Xtrackers. However, WisdomTree NASDAQ is 2.11 times more volatile than Xtrackers SP 500. It trades about 0.09 of its potential returns per unit of risk. Xtrackers SP 500 is currently generating about 0.14 per unit of risk. If you would invest  13,635  in WisdomTree NASDAQ 100 on September 4, 2024 and sell it today you would earn a total of  11,288  from holding WisdomTree NASDAQ 100 or generate 82.79% return on investment over 90 days.

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

WisdomTree NASDAQ 100  vs.  Xtrackers SP 500

WisdomTree NASDAQ 100

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree NASDAQ 100 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree NASDAQ unveiled solid returns over the last few months and may actually be approaching a breakup point.

Xtrackers SP 500

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP 500 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xtrackers unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WisdomTree NASDAQ and Xtrackers

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

The idea behind WisdomTree NASDAQ 100 and Xtrackers 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.