Correlation Between WisdomTree SmallCap and First Trust

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

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

Diversification Opportunities for WisdomTree SmallCap and First Trust

0.92

Correlation Coefficient

WisdomTree SmallCap  First Trust

Almost no diversification

The 3 months correlation between WisdomTree and First is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Dividend and First Trust SMID in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SMID and WisdomTree SmallCap 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 SmallCap Dividend are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust SMID has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and First Trust go up and down completely randomly.

Pair Corralation between WisdomTree SmallCap and First Trust

Considering the 90-day investment horizon WisdomTree SmallCap is expected to generate 1.35 times less return on investment than First Trust. In addition to that, WisdomTree SmallCap is 1.18 times more volatile than First Trust SMID. It trades about 0.12 of its total potential returns per unit of risk. First Trust SMID is currently generating about 0.19 per unit of volatility. If you would invest  2,749  in First Trust SMID on April 30, 2025 and sell it today you would earn a total of  325.00  from holding First Trust SMID or generate 11.82% return on investment over 90 days.

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

WisdomTree SmallCap Dividend  vs.  First Trust SMID

WisdomTree SmallCap

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Dividend are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, WisdomTree SmallCap may actually be approaching a critical reversion point that can send shares even higher in August 2025.

First Trust SMID

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SMID are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with WisdomTree SmallCap and First Trust

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

The idea behind WisdomTree SmallCap Dividend and First Trust SMID 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.