Correlation Between WisdomTree Japan and Templeton Dragon

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

Diversification Opportunities for WisdomTree Japan and Templeton Dragon

0.95

Correlation Coefficient

WisdomTree Japan  Templeton Dragon

Almost no diversification

The 3 months correlation between WisdomTree and Templeton is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan SmallCap and Templeton Dragon Closed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Dragon Closed 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 Templeton Dragon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Dragon Closed has no effect on the direction of WisdomTree Japan i.e., WisdomTree Japan and Templeton Dragon go up and down completely randomly.

Pair Corralation between WisdomTree Japan and Templeton Dragon

Considering the 90-day investment horizon WisdomTree Japan is expected to generate 2.23 times less return on investment than Templeton Dragon. But when comparing it to its historical volatility, WisdomTree Japan SmallCap is 1.84 times less risky than Templeton Dragon. It trades about 0.14 of its potential returns per unit of risk. Templeton Dragon Closed is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  856.00  in Templeton Dragon Closed on December 27, 2024 and sell it today you would earn a total of  135.00  from holding Templeton Dragon Closed or generate 15.77% return on investment over 90 days.

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

WisdomTree Japan SmallCap  vs.  Templeton Dragon Closed

WisdomTree Japan SmallCap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Japan SmallCap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting technical and fundamental indicators, WisdomTree Japan may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Templeton Dragon Closed

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Templeton Dragon Closed are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. Despite nearly inconsistent fundamental indicators, Templeton Dragon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WisdomTree Japan and Templeton Dragon

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

The idea behind WisdomTree Japan SmallCap and Templeton Dragon Closed 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.

Check out your portfolio center.

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 Transaction History module to view history of all your transactions and understand their impact on performance.