Correlation Between WisdomTree Europe and Goldman Sachs

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

By analyzing existing cross correlation between WisdomTree Europe Quality and Goldman Sachs ActiveBeta, you can compare the effects of market volatilities on WisdomTree Europe and Goldman Sachs 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 Goldman Sachs. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Europe and Goldman Sachs.

Diversification Opportunities for WisdomTree Europe and Goldman Sachs

0.99

Correlation Coefficient

WisdomTree Europe  Goldman Sachs

No risk reduction

The 3 months correlation between WisdomTree and Goldman is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Europe Quality and Goldman Sachs ActiveBeta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs ActiveBeta 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 Quality are associated (or correlated) with Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs ActiveBeta has no effect on the direction of WisdomTree Europe i.e., WisdomTree Europe and Goldman Sachs go up and down completely randomly.

Pair Corralation between WisdomTree Europe and Goldman Sachs

Given the investment horizon of 90 days WisdomTree Europe Quality is expected to generate 1.03 times more return on investment than Goldman Sachs. However, WisdomTree Europe is 1.03 times more volatile than Goldman Sachs ActiveBeta. It trades about 0.24 of its potential returns per unit of risk. Goldman Sachs ActiveBeta is currently generating about 0.21 per unit of risk. If you would invest  2,995  in WisdomTree Europe Quality on December 21, 2024 and sell it today you would earn a total of  381.10  from holding WisdomTree Europe Quality or generate 12.72% return on investment over 90 days.

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

WisdomTree Europe Quality  vs.  Goldman Sachs ActiveBeta

WisdomTree Europe Quality

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Quality are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady fundamental indicators, WisdomTree Europe reported solid returns over the last few months and may actually be approaching a breakup point.

Goldman Sachs ActiveBeta

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs ActiveBeta are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Goldman Sachs may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with WisdomTree Europe and Goldman Sachs

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

The idea behind WisdomTree Europe Quality and Goldman Sachs ActiveBeta 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.