Correlation Between MicroSectors FANG and WisdomTree MidCap

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and WisdomTree MidCap 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 MidCap 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 MidCap Dividend, you can compare the effects of market volatilities on MicroSectors FANG and WisdomTree MidCap 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 MidCap. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and WisdomTree MidCap.

Diversification Opportunities for MicroSectors FANG and WisdomTree MidCap

0.14

Correlation Coefficient

MicroSectors FANG  WisdomTree MidCap

Average diversification

The 3 months correlation between MicroSectors and WisdomTree is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and WisdomTree MidCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree MidCap 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 MidCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree MidCap has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and WisdomTree MidCap go up and down completely randomly.

Pair Corralation between MicroSectors FANG and WisdomTree MidCap

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 4.71 times more return on investment than WisdomTree MidCap. However, MicroSectors FANG is 4.71 times more volatile than WisdomTree MidCap Dividend. It trades about 0.05 of its potential returns per unit of risk. WisdomTree MidCap Dividend is currently generating about 0.02 per unit of risk. If you would invest  42,300  in MicroSectors FANG Index on March 15, 2025 and sell it today you would earn a total of  1,090  from holding MicroSectors FANG Index or generate 2.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	75.81%
Values	Daily Returns

MicroSectors FANG Index  vs.  WisdomTree MidCap Dividend

MicroSectors FANG Index

Risk-Adjusted Performance

Insignificant

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively conflicting technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree MidCap

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree MidCap Dividend are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, WisdomTree MidCap is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MicroSectors FANG and WisdomTree MidCap

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

The idea behind MicroSectors FANG Index and WisdomTree MidCap 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..