Correlation Between WisdomTree Europe and WisdomTree International

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

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

Diversification Opportunities for WisdomTree Europe and WisdomTree International

0.61

Correlation Coefficient

WisdomTree Europe  WisdomTree International

Poor diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Europe Hedged and WisdomTree International Quali in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree International 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 Hedged are associated (or correlated) with WisdomTree International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree International has no effect on the direction of WisdomTree Europe i.e., WisdomTree Europe and WisdomTree International go up and down completely randomly.

Pair Corralation between WisdomTree Europe and WisdomTree International

Given the investment horizon of 90 days WisdomTree Europe is expected to generate 2.34 times less return on investment than WisdomTree International. But when comparing it to its historical volatility, WisdomTree Europe Hedged is 1.25 times less risky than WisdomTree International. It trades about 0.12 of its potential returns per unit of risk. WisdomTree International Quality is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  3,491  in WisdomTree International Quality on September 16, 2024 and sell it today you would earn a total of  104.00  from holding WisdomTree International Quality or generate 2.98% return on investment over 90 days.

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

WisdomTree Europe Hedged  vs.  WisdomTree International Quali

WisdomTree Europe Hedged

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Hedged are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, WisdomTree Europe is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

WisdomTree International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree International Quality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, WisdomTree International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with WisdomTree Europe and WisdomTree International

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

The idea behind WisdomTree Europe Hedged and WisdomTree International 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..