Correlation Between WisdomTree China and SPDR SP

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

Diversification Opportunities for WisdomTree China and SPDR SP

0.73

Correlation Coefficient

WisdomTree China  SPDR SP

Poor diversification

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

Pair Corralation between WisdomTree China and SPDR SP

Given the investment horizon of 90 days WisdomTree China ex State Owned is expected to under-perform the SPDR SP. In addition to that, WisdomTree China is 1.98 times more volatile than SPDR SP Emerging. It trades about -0.01 of its total potential returns per unit of risk. SPDR SP Emerging is currently generating about 0.04 per unit of volatility. If you would invest  9,882  in SPDR SP Emerging on October 3, 2024 and sell it today you would earn a total of  1,674  from holding SPDR SP Emerging or generate 16.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

WisdomTree China ex State Owne  vs.  SPDR SP Emerging

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 weak performance in the last few months, the Etf's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

SPDR SP Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with WisdomTree China and SPDR SP

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

The idea behind WisdomTree China ex State Owned and SPDR SP Emerging 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.