Correlation Between WisdomTree and Xtrackers MSCI

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

By analyzing existing cross correlation between WisdomTree SP 500 and Xtrackers MSCI USA, you can compare the effects of market volatilities on WisdomTree and Xtrackers MSCI 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 Xtrackers MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree and Xtrackers MSCI.

Diversification Opportunities for WisdomTree and Xtrackers MSCI

-0.33

Correlation Coefficient

WisdomTree  Xtrackers MSCI

Very good diversification

The 3 months correlation between WisdomTree and Xtrackers is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SP 500 and Xtrackers MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI USA 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 SP 500 are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI USA has no effect on the direction of WisdomTree i.e., WisdomTree and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between WisdomTree and Xtrackers MSCI

Assuming the 90 days trading horizon WisdomTree SP 500 is expected to generate 3.66 times more return on investment than Xtrackers MSCI. However, WisdomTree is 3.66 times more volatile than Xtrackers MSCI USA. It trades about 0.18 of its potential returns per unit of risk. Xtrackers MSCI USA is currently generating about 0.12 per unit of risk. If you would invest  124,250  in WisdomTree SP 500 on October 10, 2024 and sell it today you would earn a total of  13,400  from holding WisdomTree SP 500 or generate 10.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

WisdomTree SP 500  vs.  Xtrackers MSCI USA

WisdomTree SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, WisdomTree is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Xtrackers MSCI USA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI USA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xtrackers MSCI may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with WisdomTree and Xtrackers MSCI

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

The idea behind WisdomTree SP 500 and Xtrackers MSCI USA 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.