Correlation Between WisdomTree China and Franklin FTSE

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

By analyzing existing cross correlation between WisdomTree China ex State Owned and Franklin FTSE Brazil, you can compare the effects of market volatilities on WisdomTree China and Franklin FTSE 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 China with a short position of Franklin FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree China and Franklin FTSE.

Diversification Opportunities for WisdomTree China and Franklin FTSE

0.73

Correlation Coefficient

WisdomTree China  Franklin FTSE

Poor diversification

The 3 months correlation between WisdomTree and Franklin is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree China ex State Owne and Franklin FTSE Brazil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin FTSE Brazil and WisdomTree 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 WisdomTree China ex State Owned are associated (or correlated) with Franklin FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin FTSE Brazil has no effect on the direction of WisdomTree China i.e., WisdomTree China and Franklin FTSE go up and down completely randomly.

Pair Corralation between WisdomTree China and Franklin FTSE

Given the investment horizon of 90 days WisdomTree China ex State Owned is expected to under-perform the Franklin FTSE. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree China ex State Owned is 1.0 times less risky than Franklin FTSE. The etf trades about -0.09 of its potential returns per unit of risk. The Franklin FTSE Brazil is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,436  in Franklin FTSE Brazil on October 25, 2024 and sell it today you would earn a total of  67.00  from holding Franklin FTSE Brazil or generate 4.67% return on investment over 90 days.

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

WisdomTree China ex State Owne  vs.  Franklin FTSE Brazil

WisdomTree China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree China ex State Owned has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak 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.

Franklin FTSE Brazil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin FTSE Brazil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Etf's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with WisdomTree China and Franklin FTSE

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

The idea behind WisdomTree China ex State Owned and Franklin FTSE Brazil 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..