Correlation Between First Trust and WisdomTree International

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

By analyzing existing cross correlation between First Trust Emerging and WisdomTree International Efficient, you can compare the effects of market volatilities on First Trust and WisdomTree International 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 International. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and WisdomTree International.

Diversification Opportunities for First Trust and WisdomTree International

0.94

Correlation Coefficient

First Trust  WisdomTree International

Almost no diversification

The 3 months correlation between First and WisdomTree is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Emerging and WisdomTree International Effic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree International 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 Emerging are associated (or correlated) with WisdomTree International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree International has no effect on the direction of First Trust i.e., First Trust and WisdomTree International go up and down completely randomly.

Pair Corralation between First Trust and WisdomTree International

Given the investment horizon of 90 days First Trust is expected to generate 4.42 times less return on investment than WisdomTree International. But when comparing it to its historical volatility, First Trust Emerging is 1.71 times less risky than WisdomTree International. It trades about 0.1 of its potential returns per unit of risk. WisdomTree International Efficient is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  3,549  in WisdomTree International Efficient on September 14, 2024 and sell it today you would earn a total of  119.00  from holding WisdomTree International Efficient or generate 3.35% return on investment over 90 days.

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

First Trust Emerging  vs.  WisdomTree International Effic

First Trust Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, First Trust is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

WisdomTree International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree International Efficient has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, WisdomTree International is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and WisdomTree International

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

The idea behind First Trust Emerging and WisdomTree International Efficient 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.