Correlation Between Invesco MSCI and WisdomTree Europe

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

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

Diversification Opportunities for Invesco MSCI and WisdomTree Europe

0.35

Correlation Coefficient

Invesco MSCI  WisdomTree Europe

Weak diversification

The 3 months correlation between Invesco and WisdomTree is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Invesco MSCI USA and WisdomTree Europe Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe Equity and Invesco MSCI 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 Invesco MSCI USA 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 Equity has no effect on the direction of Invesco MSCI i.e., Invesco MSCI and WisdomTree Europe go up and down completely randomly.

Pair Corralation between Invesco MSCI and WisdomTree Europe

Assuming the 90 days trading horizon Invesco MSCI USA is expected to under-perform the WisdomTree Europe. In addition to that, Invesco MSCI is 2.35 times more volatile than WisdomTree Europe Equity. It trades about -0.05 of its total potential returns per unit of risk. WisdomTree Europe Equity is currently generating about 0.4 per unit of volatility. If you would invest  1,867  in WisdomTree Europe Equity on December 2, 2024 and sell it today you would earn a total of  172.00  from holding WisdomTree Europe Equity or generate 9.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Invesco MSCI USA  vs.  WisdomTree Europe Equity

Invesco MSCI USA

Risk-Adjusted Performance

Very Weak

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

WisdomTree Europe Equity

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Equity are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Invesco MSCI and WisdomTree Europe

The main advantage of trading using opposite Invesco MSCI and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco MSCI 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 Invesco MSCI USA and WisdomTree Europe Equity 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.