Correlation Between WisdomTree Japan and WisdomTree Europe

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

By analyzing existing cross correlation between WisdomTree Japan SmallCap and WisdomTree Europe SmallCap, you can compare the effects of market volatilities on WisdomTree Japan and WisdomTree Europe 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 Japan with a short position of WisdomTree Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Japan and WisdomTree Europe.

Diversification Opportunities for WisdomTree Japan and WisdomTree Europe

0.44

Correlation Coefficient

WisdomTree Japan  WisdomTree Europe

Very weak diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan SmallCap and WisdomTree Europe SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe and WisdomTree Japan 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 Japan SmallCap are associated (or correlated) with WisdomTree Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Europe has no effect on the direction of WisdomTree Japan i.e., WisdomTree Japan and WisdomTree Europe go up and down completely randomly.

Pair Corralation between WisdomTree Japan and WisdomTree Europe

Considering the 90-day investment horizon WisdomTree Japan SmallCap is expected to generate 0.93 times more return on investment than WisdomTree Europe. However, WisdomTree Japan SmallCap is 1.07 times less risky than WisdomTree Europe. It trades about -0.06 of its potential returns per unit of risk. WisdomTree Europe SmallCap is currently generating about -0.12 per unit of risk. If you would invest  7,586  in WisdomTree Japan SmallCap on October 20, 2024 and sell it today you would lose (247.00) from holding WisdomTree Japan SmallCap or give up 3.26% of portfolio value over 90 days.

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

WisdomTree Japan SmallCap  vs.  WisdomTree Europe SmallCap

WisdomTree Japan SmallCap

Risk-Adjusted Performance

0 of 100

Very Weak

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

WisdomTree Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Europe SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with WisdomTree Japan and WisdomTree Europe

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

The idea behind WisdomTree Japan SmallCap and WisdomTree Europe SmallCap 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.