Correlation Between WisdomTree STOXX and WisdomTree

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

By analyzing existing cross correlation between WisdomTree STOXX Europe and WisdomTree SP 500, you can compare the effects of market volatilities on WisdomTree STOXX and WisdomTree 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 STOXX with a short position of WisdomTree. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree STOXX and WisdomTree.

Diversification Opportunities for WisdomTree STOXX and WisdomTree

-0.52

Correlation Coefficient

WisdomTree STOXX  WisdomTree

Excellent diversification

The 3 months correlation between WisdomTree and WisdomTree is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree STOXX Europe and WisdomTree SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SP 500 and WisdomTree STOXX 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 STOXX Europe are associated (or correlated) with WisdomTree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SP 500 has no effect on the direction of WisdomTree STOXX i.e., WisdomTree STOXX and WisdomTree go up and down completely randomly.

Pair Corralation between WisdomTree STOXX and WisdomTree

Assuming the 90 days trading horizon WisdomTree STOXX Europe is expected to under-perform the WisdomTree. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree STOXX Europe is 1.1 times less risky than WisdomTree. The etf trades about -0.06 of its potential returns per unit of risk. The WisdomTree SP 500 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  9,632  in WisdomTree SP 500 on September 29, 2024 and sell it today you would earn a total of  1,570  from holding WisdomTree SP 500 or generate 16.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

WisdomTree STOXX Europe  vs.  WisdomTree SP 500

WisdomTree STOXX Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree STOXX Europe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

WisdomTree SP 500

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SP 500 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WisdomTree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WisdomTree STOXX and WisdomTree

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

The idea behind WisdomTree STOXX Europe and WisdomTree SP 500 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.