Correlation Between MicroSectors FANG and WisdomTree Trust

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

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

Diversification Opportunities for MicroSectors FANG and WisdomTree Trust

-0.63

Correlation Coefficient

MicroSectors FANG  WisdomTree Trust

Excellent diversification

The 3 months correlation between MicroSectors and WisdomTree is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and WisdomTree Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Trust and MicroSectors FANG 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 MicroSectors FANG Index 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 MicroSectors FANG i.e., MicroSectors FANG and WisdomTree Trust go up and down completely randomly.

Pair Corralation between MicroSectors FANG and WisdomTree Trust

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the WisdomTree Trust. In addition to that, MicroSectors FANG is 4.53 times more volatile than WisdomTree Trust . It trades about -0.3 of its total potential returns per unit of risk. WisdomTree Trust is currently generating about 0.21 per unit of volatility. If you would invest  7,366  in WisdomTree Trust on February 4, 2025 and sell it today you would earn a total of  730.00  from holding WisdomTree Trust or generate 9.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

MicroSectors FANG Index  vs.  WisdomTree Trust

MicroSectors FANG Index

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, MicroSectors FANG may actually be approaching a critical reversion point that can send shares even higher in June 2025.

WisdomTree Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, WisdomTree Trust is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with MicroSectors FANG and WisdomTree Trust

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

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.