Correlation Between IShares MSCI and WisdomTree Japan

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

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

Diversification Opportunities for IShares MSCI and WisdomTree Japan

0.23

Correlation Coefficient

IShares MSCI  WisdomTree Japan

Modest diversification

The 3 months correlation between IShares and WisdomTree is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Japan and WisdomTree Japan Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Japan Hedged and IShares 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 iShares MSCI Japan are associated (or correlated) with WisdomTree Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Japan Hedged has no effect on the direction of IShares MSCI i.e., IShares MSCI and WisdomTree Japan go up and down completely randomly.

Pair Corralation between IShares MSCI and WisdomTree Japan

Considering the 90-day investment horizon IShares MSCI is expected to generate 19.15 times less return on investment than WisdomTree Japan. But when comparing it to its historical volatility, iShares MSCI Japan is 1.15 times less risky than WisdomTree Japan. It trades about 0.0 of its potential returns per unit of risk. WisdomTree Japan Hedged is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  10,729  in WisdomTree Japan Hedged on October 21, 2024 and sell it today you would earn a total of  41.00  from holding WisdomTree Japan Hedged or generate 0.38% return on investment over 90 days.

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

iShares MSCI Japan  vs.  WisdomTree Japan Hedged

iShares MSCI Japan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Japan has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, IShares MSCI is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

WisdomTree Japan Hedged

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Japan Hedged are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady basic indicators, WisdomTree Japan is not utilizing all of its potentials. The new stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with IShares MSCI and WisdomTree Japan

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

The idea behind iShares MSCI Japan and WisdomTree Japan Hedged 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.