Correlation Between IShares MSCI and WisdomTree Europe

Can any of the company-specific risk be diversified away by investing in both IShares 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 IShares 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 iShares MSCI United and WisdomTree Europe Quality, you can compare the effects of market volatilities on IShares 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 IShares MSCI with a short position of WisdomTree Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and WisdomTree Europe.

Diversification Opportunities for IShares MSCI and WisdomTree Europe

0.99

Correlation Coefficient

IShares MSCI  WisdomTree Europe

No risk reduction

The 3 months correlation between IShares and WisdomTree is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI United and WisdomTree Europe Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe Quality 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 United 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 Quality has no effect on the direction of IShares MSCI i.e., IShares MSCI and WisdomTree Europe go up and down completely randomly.

Pair Corralation between IShares MSCI and WisdomTree Europe

Considering the 90-day investment horizon IShares MSCI is expected to generate 1.05 times less return on investment than WisdomTree Europe. But when comparing it to its historical volatility, iShares MSCI United is 1.06 times less risky than WisdomTree Europe. It trades about 0.21 of its potential returns per unit of risk. WisdomTree Europe Quality is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,995  in WisdomTree Europe Quality on December 23, 2024 and sell it today you would earn a total of  344.00  from holding WisdomTree Europe Quality or generate 11.49% return on investment over 90 days.

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

iShares MSCI United  vs.  WisdomTree Europe Quality

iShares MSCI United

Risk-Adjusted Performance

Solid

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

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 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady fundamental indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares MSCI and WisdomTree Europe

The main advantage of trading using opposite IShares MSCI and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 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 iShares MSCI United and WisdomTree Europe 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.