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

0.94

Correlation Coefficient

WisdomTree SmallCap  First Trust

Almost no diversification

The 3 months correlation between WisdomTree and First is 0.94. 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 Dividend is expected to under-perform the First Trust. In addition to that, WisdomTree SmallCap is 1.02 times more volatile than First Trust SMID. It trades about -0.01 of its total potential returns per unit of risk. First Trust SMID is currently generating about 0.04 per unit of volatility. If you would invest  3,774  in First Trust SMID on July 4, 2025 and sell it today you would earn a total of  26.50  from holding First Trust SMID or generate 0.7% 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

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Dividend are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, WisdomTree SmallCap is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

First Trust SMID

Risk-Adjusted Performance

Fair

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

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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.