Correlation Between First Trust and WisdomTree Europe

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

By analyzing existing cross correlation between First Trust Morningstar and WisdomTree Europe SmallCap, you can compare the effects of market volatilities on First Trust 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 First Trust with a short position of WisdomTree Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and WisdomTree Europe.

Diversification Opportunities for First Trust and WisdomTree Europe

-0.24

Correlation Coefficient

First Trust  WisdomTree Europe

Very good diversification

The 3 months correlation between First and WisdomTree is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Morningstar and WisdomTree Europe SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe and First Trust 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 First Trust Morningstar 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 has no effect on the direction of First Trust i.e., First Trust and WisdomTree Europe go up and down completely randomly.

Pair Corralation between First Trust and WisdomTree Europe

Considering the 90-day investment horizon First Trust Morningstar is expected to under-perform the WisdomTree Europe. In addition to that, First Trust is 1.04 times more volatile than WisdomTree Europe SmallCap. It trades about -0.36 of its total potential returns per unit of risk. WisdomTree Europe SmallCap is currently generating about -0.11 per unit of volatility. If you would invest  5,730  in WisdomTree Europe SmallCap on September 21, 2024 and sell it today you would lose (112.00) from holding WisdomTree Europe SmallCap or give up 1.95% of portfolio value over 90 days.

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

First Trust Morningstar  vs.  WisdomTree Europe SmallCap

First Trust Morningstar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Morningstar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

WisdomTree Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Europe SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with First Trust and WisdomTree Europe

The main advantage of trading using opposite First Trust and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Morningstar and WisdomTree Europe SmallCap 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.