Correlation Between WisdomTree and Two Harbors

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

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

Diversification Opportunities for WisdomTree and Two Harbors

-0.55

Correlation Coefficient

WisdomTree  Two Harbors

Excellent diversification

The 3 months correlation between WisdomTree and Two is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree and Two Harbors Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investments and WisdomTree 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 are associated (or correlated) with Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investments has no effect on the direction of WisdomTree i.e., WisdomTree and Two Harbors go up and down completely randomly.

Pair Corralation between WisdomTree and Two Harbors

Allowing for the 90-day total investment horizon WisdomTree is expected to under-perform the Two Harbors. In addition to that, WisdomTree is 1.09 times more volatile than Two Harbors Investments. It trades about -0.15 of its total potential returns per unit of risk. Two Harbors Investments is currently generating about 0.02 per unit of volatility. If you would invest  1,089  in Two Harbors Investments on January 8, 2025 and sell it today you would earn a total of  14.00  from holding Two Harbors Investments or generate 1.29% return on investment over 90 days.

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

WisdomTree  vs.  Two Harbors Investments

WisdomTree

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Two Harbors Investments

Risk-Adjusted Performance

Very Weak

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

Pair Trading with WisdomTree and Two Harbors

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

The idea behind WisdomTree and Two Harbors Investments 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..