Correlation Between WisdomTree Dynamic and IShares MSCI

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

By analyzing existing cross correlation between WisdomTree Dynamic Currency and iShares MSCI EAFE, you can compare the effects of market volatilities on WisdomTree Dynamic and IShares MSCI 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 Dynamic with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Dynamic and IShares MSCI.

Diversification Opportunities for WisdomTree Dynamic and IShares MSCI

0.98

Correlation Coefficient

WisdomTree Dynamic  IShares MSCI

Almost no diversification

The 3 months correlation between WisdomTree and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Dynamic Currency and iShares MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EAFE and WisdomTree Dynamic 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 Dynamic Currency are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI EAFE has no effect on the direction of WisdomTree Dynamic i.e., WisdomTree Dynamic and IShares MSCI go up and down completely randomly.

Pair Corralation between WisdomTree Dynamic and IShares MSCI

Given the investment horizon of 90 days WisdomTree Dynamic Currency is expected to generate 0.85 times more return on investment than IShares MSCI. However, WisdomTree Dynamic Currency is 1.18 times less risky than IShares MSCI. It trades about -0.02 of its potential returns per unit of risk. iShares MSCI EAFE is currently generating about -0.04 per unit of risk. If you would invest  3,523  in WisdomTree Dynamic Currency on September 12, 2024 and sell it today you would lose (33.00) from holding WisdomTree Dynamic Currency or give up 0.94% of portfolio value over 90 days.

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

WisdomTree Dynamic Currency  vs.  iShares MSCI EAFE

WisdomTree Dynamic

Risk-Adjusted Performance

0 of 100

Very Weak

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

iShares MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with WisdomTree Dynamic and IShares MSCI

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

The idea behind WisdomTree Dynamic Currency and iShares MSCI EAFE 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.