Correlation Between WisdomTree China and WisdomTree International

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

Diversification Opportunities for WisdomTree China and WisdomTree International

0.33

Correlation Coefficient

WisdomTree China  WisdomTree International

Weak diversification

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

Pair Corralation between WisdomTree China and WisdomTree International

Given the investment horizon of 90 days WisdomTree China ex State Owned is expected to generate 4.7 times more return on investment than WisdomTree International. However, WisdomTree China is 4.7 times more volatile than WisdomTree International Hedged. It trades about 0.1 of its potential returns per unit of risk. WisdomTree International Hedged is currently generating about 0.01 per unit of risk. If you would invest  2,587  in WisdomTree China ex State Owned on September 15, 2024 and sell it today you would earn a total of  496.00  from holding WisdomTree China ex State Owned or generate 19.17% return on investment over 90 days.

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

WisdomTree China ex State Owne  vs.  WisdomTree International Hedge

WisdomTree China

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree China ex State Owned are ranked lower than 7 (%) 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.

WisdomTree International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree International Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, WisdomTree International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with WisdomTree China and WisdomTree International

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

The idea behind WisdomTree China ex State Owned and WisdomTree International Hedged 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.