Correlation Between WisdomTree China and Invesco Golden

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

Diversification Opportunities for WisdomTree China and Invesco Golden

0.93

Correlation Coefficient

WisdomTree China  Invesco Golden

Almost no diversification

The 3 months correlation between WisdomTree and Invesco is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree China ex State Owne and Invesco Golden Dragon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Golden Dragon 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 Invesco Golden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Golden Dragon has no effect on the direction of WisdomTree China i.e., WisdomTree China and Invesco Golden go up and down completely randomly.

Pair Corralation between WisdomTree China and Invesco Golden

Given the investment horizon of 90 days WisdomTree China is expected to generate 2.29 times less return on investment than Invesco Golden. In addition to that, WisdomTree China is 1.0 times more volatile than Invesco Golden Dragon. It trades about 0.05 of its total potential returns per unit of risk. Invesco Golden Dragon is currently generating about 0.12 per unit of volatility. If you would invest  2,526  in Invesco Golden Dragon on September 26, 2024 and sell it today you would earn a total of  157.00  from holding Invesco Golden Dragon or generate 6.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

WisdomTree China ex State Owne  vs.  Invesco Golden Dragon

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 rather sound basic indicators, WisdomTree China is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Invesco Golden Dragon

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Invesco Golden Dragon has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady technical and fundamental indicators, Invesco Golden is not utilizing all of its potentials. The recent stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with WisdomTree China and Invesco Golden

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

The idea behind WisdomTree China ex State Owned and Invesco Golden Dragon 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.