Correlation Between MicroSectors FANG and WisdomTree Emerging

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

Diversification Opportunities for MicroSectors FANG and WisdomTree Emerging

-0.67

Correlation Coefficient

MicroSectors FANG  WisdomTree Emerging

Excellent diversification

The 3 months correlation between MicroSectors and WisdomTree is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging 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 Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between MicroSectors FANG and WisdomTree Emerging

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 2.48 times more return on investment than WisdomTree Emerging. However, MicroSectors FANG is 2.48 times more volatile than WisdomTree Emerging Markets. It trades about 0.25 of its potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about 0.2 per unit of risk. If you would invest  39,721  in MicroSectors FANG Index on April 29, 2025 and sell it today you would earn a total of  3,669  from holding MicroSectors FANG Index or generate 9.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	27.42%
Values	Daily Returns

MicroSectors FANG Index  vs.  WisdomTree Emerging Markets

MicroSectors FANG Index

Risk-Adjusted Performance

Solid

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 Emerging

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Emerging Markets are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, WisdomTree Emerging may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with MicroSectors FANG and WisdomTree Emerging

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

The idea behind MicroSectors FANG Index and WisdomTree Emerging Markets 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.