Correlation Between Vanguard Value and WisdomTree LargeCap

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

By analyzing existing cross correlation between Vanguard Value Index and WisdomTree LargeCap Dividend, you can compare the effects of market volatilities on Vanguard Value and WisdomTree LargeCap 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 Vanguard Value with a short position of WisdomTree LargeCap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and WisdomTree LargeCap.

Diversification Opportunities for Vanguard Value and WisdomTree LargeCap

0.98

Correlation Coefficient

Vanguard Value  WisdomTree LargeCap

Almost no diversification

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

Pair Corralation between Vanguard Value and WisdomTree LargeCap

Considering the 90-day investment horizon Vanguard Value is expected to generate 1.5 times less return on investment than WisdomTree LargeCap. In addition to that, Vanguard Value is 1.17 times more volatile than WisdomTree LargeCap Dividend. It trades about 0.09 of its total potential returns per unit of risk. WisdomTree LargeCap Dividend is currently generating about 0.16 per unit of volatility. If you would invest  7,622  in WisdomTree LargeCap Dividend on September 12, 2024 and sell it today you would earn a total of  431.00  from holding WisdomTree LargeCap Dividend or generate 5.65% return on investment over 90 days.

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

Vanguard Value Index  vs.  WisdomTree LargeCap Dividend

Vanguard Value Index

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

WisdomTree LargeCap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree LargeCap Dividend are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, WisdomTree LargeCap is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Value and WisdomTree LargeCap

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

The idea behind Vanguard Value Index and WisdomTree LargeCap Dividend 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.