Correlation Between Vanguard Extended and WisdomTree Multifactor

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

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

Diversification Opportunities for Vanguard Extended and WisdomTree Multifactor

0.99

Correlation Coefficient

Vanguard Extended  WisdomTree Multifactor

No risk reduction

The 3 months correlation between Vanguard and WisdomTree is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Market and WisdomTree Multifactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Multifactor and Vanguard Extended 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 Extended Market are associated (or correlated) with WisdomTree Multifactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Multifactor has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and WisdomTree Multifactor go up and down completely randomly.

Pair Corralation between Vanguard Extended and WisdomTree Multifactor

Considering the 90-day investment horizon Vanguard Extended Market is expected to generate 1.59 times more return on investment than WisdomTree Multifactor. However, Vanguard Extended is 1.59 times more volatile than WisdomTree Multifactor. It trades about 0.25 of its potential returns per unit of risk. WisdomTree Multifactor is currently generating about 0.23 per unit of risk. If you would invest  17,407  in Vanguard Extended Market on September 1, 2024 and sell it today you would earn a total of  3,095  from holding Vanguard Extended Market or generate 17.78% return on investment over 90 days.

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

Vanguard Extended Market  vs.  WisdomTree Multifactor

Vanguard Extended Market

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Market are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Vanguard Extended reported solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree Multifactor

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Multifactor are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, WisdomTree Multifactor may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Extended and WisdomTree Multifactor

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

The idea behind Vanguard Extended Market and WisdomTree Multifactor 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.