Correlation Between WisdomTree Europe and Xtrackers MSCI

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

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

Diversification Opportunities for WisdomTree Europe and Xtrackers MSCI

0.98

Correlation Coefficient

WisdomTree Europe  Xtrackers MSCI

Almost no diversification

The 3 months correlation between WisdomTree and Xtrackers is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Europe Hedged and Xtrackers MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI EAFE and WisdomTree Europe 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 WisdomTree Europe Hedged are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI EAFE has no effect on the direction of WisdomTree Europe i.e., WisdomTree Europe and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between WisdomTree Europe and Xtrackers MSCI

Given the investment horizon of 90 days WisdomTree Europe is expected to generate 1.08 times less return on investment than Xtrackers MSCI. In addition to that, WisdomTree Europe is 1.19 times more volatile than Xtrackers MSCI EAFE. It trades about 0.08 of its total potential returns per unit of risk. Xtrackers MSCI EAFE is currently generating about 0.1 per unit of volatility. If you would invest  3,183  in Xtrackers MSCI EAFE on December 2, 2024 and sell it today you would earn a total of  1,250  from holding Xtrackers MSCI EAFE or generate 39.27% return on investment over 90 days.

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

WisdomTree Europe Hedged  vs.  Xtrackers MSCI EAFE

WisdomTree Europe Hedged

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Hedged are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively sluggish fundamental indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Xtrackers MSCI EAFE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI EAFE are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Xtrackers MSCI is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with WisdomTree Europe and Xtrackers MSCI

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

The idea behind WisdomTree Europe Hedged and Xtrackers MSCI EAFE 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.