Correlation Between SPDR Portfolio and WisdomTree Trust

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

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

Diversification Opportunities for SPDR Portfolio and WisdomTree Trust

-0.03

Correlation Coefficient

SPDR Portfolio  WisdomTree Trust

Good diversification

The 3 months correlation between SPDR and WisdomTree is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Aggregate and WisdomTree Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Trust and SPDR Portfolio 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 SPDR Portfolio Aggregate 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 SPDR Portfolio i.e., SPDR Portfolio and WisdomTree Trust go up and down completely randomly.

Pair Corralation between SPDR Portfolio and WisdomTree Trust

Given the investment horizon of 90 days SPDR Portfolio Aggregate is expected to under-perform the WisdomTree Trust. But the etf apears to be less risky and, when comparing its historical volatility, SPDR Portfolio Aggregate is 1.93 times less risky than WisdomTree Trust. The etf trades about -0.18 of its potential returns per unit of risk. The WisdomTree Trust is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  10,993  in WisdomTree Trust on September 21, 2024 and sell it today you would lose (383.00) from holding WisdomTree Trust or give up 3.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

SPDR Portfolio Aggregate  vs.  WisdomTree Trust

SPDR Portfolio Aggregate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Portfolio Aggregate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SPDR Portfolio is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

WisdomTree Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SPDR Portfolio and WisdomTree Trust

The main advantage of trading using opposite SPDR Portfolio and WisdomTree Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Portfolio 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 SPDR Portfolio Aggregate 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.