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 India, 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

Pay attention - limited upside

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 India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin FTSE India 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 India 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 generate 1.87 times more return on investment than Franklin FTSE. However, WisdomTree China is 1.87 times more volatile than Franklin FTSE India. It trades about 0.13 of its potential returns per unit of risk. Franklin FTSE India is currently generating about -0.07 per unit of risk. If you would invest  3,033  in WisdomTree China ex State Owned on December 22, 2024 and sell it today you would earn a total of  402.00  from holding WisdomTree China ex State Owned or generate 13.25% return on investment over 90 days.

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

WisdomTree China ex State Owne  vs.  Franklin FTSE India

WisdomTree China

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree China ex State Owned are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, WisdomTree China exhibited solid returns over the last few months and may actually be approaching a breakup point.

Franklin FTSE India

Risk-Adjusted Performance

Very Weak

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

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.