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 Hedged, 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

0.63

Correlation Coefficient

IShares MSCI  WisdomTree Europe

Poor diversification

The 3 months correlation between IShares and WisdomTree is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI United and WisdomTree Europe Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe 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 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 Hedged 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 United is expected to under-perform the WisdomTree Europe. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI United is 1.22 times less risky than WisdomTree Europe. The etf trades about -0.05 of its potential returns per unit of risk. The WisdomTree Europe Hedged is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,322  in WisdomTree Europe Hedged on September 12, 2024 and sell it today you would earn a total of  126.00  from holding WisdomTree Europe Hedged or generate 2.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

iShares MSCI United  vs.  WisdomTree Europe Hedged

iShares MSCI United

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI United has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares MSCI is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree Europe Hedged

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Hedged are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady fundamental indicators, WisdomTree Europe is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

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 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.