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 Hedged and WisdomTree Europe Hedged, 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

0.16

Correlation Coefficient

WisdomTree Japan  WisdomTree Europe

Average diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan Hedged and WisdomTree Europe Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe Hedged 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 Hedged 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 Hedged 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 Hedged is expected to generate 1.75 times more return on investment than WisdomTree Europe. However, WisdomTree Japan is 1.75 times more volatile than WisdomTree Europe Hedged. It trades about 0.03 of its potential returns per unit of risk. WisdomTree Europe Hedged is currently generating about 0.01 per unit of risk. If you would invest  10,811  in WisdomTree Japan Hedged on September 12, 2024 and sell it today you would earn a total of  473.00  from holding WisdomTree Japan Hedged or generate 4.38% return on investment over 90 days.

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

WisdomTree Japan Hedged  vs.  WisdomTree Europe Hedged

WisdomTree Japan Hedged

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Japan Hedged are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively sluggish basic indicators, WisdomTree Japan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree Europe Hedged

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Hedged are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady fundamental indicators, WisdomTree Europe is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

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 Hedged and WisdomTree Europe 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.