Correlation Between Franklin FTSE and WisdomTree Japan

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

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

Diversification Opportunities for Franklin FTSE and WisdomTree Japan

-0.26

Correlation Coefficient

Franklin FTSE  WisdomTree Japan

Very good diversification

The 3 months correlation between Franklin and WisdomTree is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Franklin FTSE Japan and WisdomTree Japan SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Japan SmallCap and Franklin FTSE 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 Franklin FTSE 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 SmallCap has no effect on the direction of Franklin FTSE i.e., Franklin FTSE and WisdomTree Japan go up and down completely randomly.

Pair Corralation between Franklin FTSE and WisdomTree Japan

Given the investment horizon of 90 days Franklin FTSE Japan is expected to generate 1.35 times more return on investment than WisdomTree Japan. However, Franklin FTSE is 1.35 times more volatile than WisdomTree Japan SmallCap. It trades about 0.13 of its potential returns per unit of risk. WisdomTree Japan SmallCap is currently generating about -0.01 per unit of risk. If you would invest  2,943  in Franklin FTSE Japan on September 12, 2024 and sell it today you would earn a total of  294.00  from holding Franklin FTSE Japan or generate 9.99% return on investment over 90 days.

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

Franklin FTSE Japan  vs.  WisdomTree Japan SmallCap

Franklin FTSE Japan

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Franklin FTSE Japan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly weak forward-looking indicators, Franklin FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree Japan SmallCap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Franklin FTSE and WisdomTree Japan

The main advantage of trading using opposite Franklin FTSE and WisdomTree Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin FTSE 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 Franklin FTSE Japan and WisdomTree Japan 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.

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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.