Correlation Between WisdomTree Natural and Legal General

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

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

Diversification Opportunities for WisdomTree Natural and Legal General

0.22

Correlation Coefficient

WisdomTree Natural  Legal General

Modest diversification

The 3 months correlation between WisdomTree and Legal is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Natural Gas and Legal General UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legal General UCITS and WisdomTree Natural 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 Natural Gas are associated (or correlated) with Legal General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legal General UCITS has no effect on the direction of WisdomTree Natural i.e., WisdomTree Natural and Legal General go up and down completely randomly.

Pair Corralation between WisdomTree Natural and Legal General

Assuming the 90 days trading horizon WisdomTree Natural Gas is expected to under-perform the Legal General. In addition to that, WisdomTree Natural is 3.54 times more volatile than Legal General UCITS. It trades about -0.06 of its total potential returns per unit of risk. Legal General UCITS is currently generating about 0.11 per unit of volatility. If you would invest  126,120  in Legal General UCITS on September 3, 2024 and sell it today you would earn a total of  14,630  from holding Legal General UCITS or generate 11.6% return on investment over 90 days.

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

WisdomTree Natural Gas  vs.  Legal General UCITS

WisdomTree Natural Gas

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Natural Gas are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree Natural may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Legal General UCITS

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legal General UCITS are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Legal General may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with WisdomTree Natural and Legal General

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

The idea behind WisdomTree Natural Gas and Legal General UCITS 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.