Correlation Between WisdomTree and Leverage Shares

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

By analyzing existing cross correlation between WisdomTree SP 500 and Leverage Shares 3x, you can compare the effects of market volatilities on WisdomTree and Leverage Shares 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 with a short position of Leverage Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree and Leverage Shares.

Diversification Opportunities for WisdomTree and Leverage Shares

0.86

Correlation Coefficient

WisdomTree  Leverage Shares

Very poor diversification

The 3 months correlation between WisdomTree and Leverage is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SP 500 and Leverage Shares 3x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leverage Shares 3x and WisdomTree 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 SP 500 are associated (or correlated) with Leverage Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leverage Shares 3x has no effect on the direction of WisdomTree i.e., WisdomTree and Leverage Shares go up and down completely randomly.

Pair Corralation between WisdomTree and Leverage Shares

Assuming the 90 days trading horizon WisdomTree SP 500 is expected to generate 0.82 times more return on investment than Leverage Shares. However, WisdomTree SP 500 is 1.22 times less risky than Leverage Shares. It trades about 0.1 of its potential returns per unit of risk. Leverage Shares 3x is currently generating about 0.06 per unit of risk. If you would invest  3,912  in WisdomTree SP 500 on September 26, 2024 and sell it today you would earn a total of  6,829  from holding WisdomTree SP 500 or generate 174.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.21%
Values	Daily Returns

WisdomTree SP 500  vs.  Leverage Shares 3x

WisdomTree SP 500

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SP 500 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WisdomTree may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Leverage Shares 3x

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Leverage Shares 3x are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Leverage Shares exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WisdomTree and Leverage Shares

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

The idea behind WisdomTree SP 500 and Leverage Shares 3x 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.