Correlation Between VanEck China and WisdomTree Emerging

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

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

Diversification Opportunities for VanEck China and WisdomTree Emerging

0.81

Correlation Coefficient

VanEck China  WisdomTree Emerging

Very poor diversification

The 3 months correlation between VanEck and WisdomTree is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding VanEck China Bond and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging and VanEck China 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 VanEck China Bond are associated (or correlated) with WisdomTree Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of VanEck China i.e., VanEck China and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between VanEck China and WisdomTree Emerging

Given the investment horizon of 90 days VanEck China Bond is expected to generate 0.49 times more return on investment than WisdomTree Emerging. However, VanEck China Bond is 2.05 times less risky than WisdomTree Emerging. It trades about -0.05 of its potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about -0.11 per unit of risk. If you would invest  2,240  in VanEck China Bond on September 18, 2024 and sell it today you would lose (24.00) from holding VanEck China Bond or give up 1.07% of portfolio value over 90 days.

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

VanEck China Bond  vs.  WisdomTree Emerging Markets

VanEck China Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck China Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, VanEck China is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

WisdomTree Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Emerging Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, WisdomTree Emerging is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with VanEck China and WisdomTree Emerging

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

The idea behind VanEck China Bond and WisdomTree Emerging Markets 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.