Correlation Between WisdomTree Europe and Lyxor MSCI

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

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

Diversification Opportunities for WisdomTree Europe and Lyxor MSCI

0.68

Correlation Coefficient

WisdomTree Europe  Lyxor MSCI

Poor diversification

The 3 months correlation between WisdomTree and Lyxor is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Europe Equity and Lyxor MSCI Brazil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor MSCI Brazil and WisdomTree Europe 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 Europe Equity are associated (or correlated) with Lyxor MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor MSCI Brazil has no effect on the direction of WisdomTree Europe i.e., WisdomTree Europe and Lyxor MSCI go up and down completely randomly.

Pair Corralation between WisdomTree Europe and Lyxor MSCI

Assuming the 90 days trading horizon WisdomTree Europe Equity is expected to generate 0.32 times more return on investment than Lyxor MSCI. However, WisdomTree Europe Equity is 3.16 times less risky than Lyxor MSCI. It trades about -0.08 of its potential returns per unit of risk. Lyxor MSCI Brazil is currently generating about -0.19 per unit of risk. If you would invest  1,908  in WisdomTree Europe Equity on September 3, 2024 and sell it today you would lose (41.00) from holding WisdomTree Europe Equity or give up 2.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

WisdomTree Europe Equity  vs.  Lyxor MSCI Brazil

WisdomTree Europe Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Europe Equity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, WisdomTree Europe is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lyxor MSCI Brazil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lyxor MSCI Brazil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with WisdomTree Europe and Lyxor MSCI

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

The idea behind WisdomTree Europe Equity and Lyxor MSCI Brazil 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.