Correlation Between WisdomTree Japan and WisdomTree SmallCap

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

Diversification Opportunities for WisdomTree Japan and WisdomTree SmallCap

0.28

Correlation Coefficient

WisdomTree Japan  WisdomTree SmallCap

Modest diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan Hedged and WisdomTree SmallCap Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap 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 SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of WisdomTree Japan i.e., WisdomTree Japan and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between WisdomTree Japan and WisdomTree SmallCap

Given the investment horizon of 90 days WisdomTree Japan Hedged is expected to generate 0.77 times more return on investment than WisdomTree SmallCap. However, WisdomTree Japan Hedged is 1.3 times less risky than WisdomTree SmallCap. It trades about 0.15 of its potential returns per unit of risk. WisdomTree SmallCap Quality is currently generating about -0.38 per unit of risk. If you would invest  3,375  in WisdomTree Japan Hedged on October 5, 2024 and sell it today you would earn a total of  82.00  from holding WisdomTree Japan Hedged or generate 2.43% return on investment over 90 days.

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

WisdomTree Japan Hedged  vs.  WisdomTree SmallCap Quality

WisdomTree Japan Hedged

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Japan Hedged are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking indicators, WisdomTree Japan is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree SmallCap

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Quality are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, WisdomTree SmallCap is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with WisdomTree Japan and WisdomTree SmallCap

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

The idea behind WisdomTree Japan Hedged and WisdomTree SmallCap Quality 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.