Correlation Between IShares Basic and WisdomTree SmallCap

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

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

Diversification Opportunities for IShares Basic and WisdomTree SmallCap

0.57

Correlation Coefficient

IShares Basic  WisdomTree SmallCap

Very weak diversification

The 3 months correlation between IShares and WisdomTree is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding iShares Basic Materials and WisdomTree SmallCap Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap and IShares Basic 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 iShares Basic Materials are associated (or correlated) with WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of IShares Basic i.e., IShares Basic and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between IShares Basic and WisdomTree SmallCap

Considering the 90-day investment horizon IShares Basic is expected to generate 4.03 times less return on investment than WisdomTree SmallCap. But when comparing it to its historical volatility, iShares Basic Materials is 1.1 times less risky than WisdomTree SmallCap. It trades about 0.01 of its potential returns per unit of risk. WisdomTree SmallCap Earnings is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,389  in WisdomTree SmallCap Earnings on August 18, 2025 and sell it today you would earn a total of  77.00  from holding WisdomTree SmallCap Earnings or generate 1.43% return on investment over 90 days.

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

iShares Basic Materials  vs.  WisdomTree SmallCap Earnings

iShares Basic Materials

Risk-Adjusted Performance

Weakest

Over the last 90 days iShares Basic Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Basic is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

WisdomTree SmallCap

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Earnings are ranked lower than 2 (%) 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.

Pair Trading with IShares Basic and WisdomTree SmallCap

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

The idea behind iShares Basic Materials and WisdomTree SmallCap Earnings 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.