Correlation Between WisdomTree Japan and DXGE

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

Diversification Opportunities for WisdomTree Japan and DXGE

0.37

Correlation Coefficient

WisdomTree Japan  DXGE

Weak diversification

The 3 months correlation between WisdomTree and DXGE is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan Hedged and DXGE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DXGE 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 DXGE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DXGE has no effect on the direction of WisdomTree Japan i.e., WisdomTree Japan and DXGE go up and down completely randomly.

Pair Corralation between WisdomTree Japan and DXGE

If you would invest  3,407  in WisdomTree Japan Hedged on October 9, 2024 and sell it today you would earn a total of  36.00  from holding WisdomTree Japan Hedged or generate 1.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	5.0%
Values	Daily Returns

WisdomTree Japan Hedged  vs.  DXGE

WisdomTree Japan Hedged

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Japan Hedged are ranked lower than 4 (%) 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.

DXGE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DXGE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, DXGE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with WisdomTree Japan and DXGE

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

The idea behind WisdomTree Japan Hedged and DXGE 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.