Correlation Between WisdomTree STOXX and Xtrackers

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

Diversification Opportunities for WisdomTree STOXX and Xtrackers

0.6

Correlation Coefficient

WisdomTree STOXX  Xtrackers

Poor diversification

The 3 months correlation between WisdomTree and Xtrackers is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree STOXX Europe and Xtrackers II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers II 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 Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers II has no effect on the direction of WisdomTree STOXX i.e., WisdomTree STOXX and Xtrackers go up and down completely randomly.

Pair Corralation between WisdomTree STOXX and Xtrackers

Assuming the 90 days trading horizon WisdomTree STOXX Europe is expected to generate 2.05 times more return on investment than Xtrackers. However, WisdomTree STOXX is 2.05 times more volatile than Xtrackers II . It trades about 0.12 of its potential returns per unit of risk. Xtrackers II is currently generating about 0.07 per unit of risk. If you would invest  1,808  in WisdomTree STOXX Europe on September 19, 2024 and sell it today you would earn a total of  106.00  from holding WisdomTree STOXX Europe or generate 5.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

WisdomTree STOXX Europe  vs.  Xtrackers II

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.

Xtrackers II

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers II has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with WisdomTree STOXX and Xtrackers

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

The idea behind WisdomTree STOXX Europe and Xtrackers II 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.