Correlation Between WisdomTree Europe and Invesco DWA

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

Diversification Opportunities for WisdomTree Europe and Invesco DWA

0.84

Correlation Coefficient

WisdomTree Europe  Invesco DWA

Very poor diversification

The 3 months correlation between WisdomTree and Invesco is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Europe Hedged and Invesco DWA Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Developed 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 Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Developed has no effect on the direction of WisdomTree Europe i.e., WisdomTree Europe and Invesco DWA go up and down completely randomly.

Pair Corralation between WisdomTree Europe and Invesco DWA

Given the investment horizon of 90 days WisdomTree Europe is expected to generate 1.17 times less return on investment than Invesco DWA. But when comparing it to its historical volatility, WisdomTree Europe Hedged is 1.26 times less risky than Invesco DWA. It trades about 0.09 of its potential returns per unit of risk. Invesco DWA Developed is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,772  in Invesco DWA Developed on December 5, 2024 and sell it today you would earn a total of  1,142  from holding Invesco DWA Developed or generate 41.2% return on investment over 90 days.

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

WisdomTree Europe Hedged  vs.  Invesco DWA Developed

WisdomTree Europe Hedged

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Hedged are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Invesco DWA Developed

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Developed are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, Invesco DWA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree Europe and Invesco DWA

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

The idea behind WisdomTree Europe Hedged and Invesco DWA Developed 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.