Correlation Between WisdomTree Europe and First Trust

Can any of the company-specific risk be diversified away by investing in both WisdomTree Europe and First Trust 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 First Trust 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 First Trust Eurozone, you can compare the effects of market volatilities on WisdomTree Europe and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Europe and First Trust.

Diversification Opportunities for WisdomTree Europe and First Trust

0.69

Correlation Coefficient

WisdomTree Europe  First Trust

Poor diversification

The 3 months correlation between WisdomTree and First is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Europe Hedged and First Trust Eurozone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Eurozone 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Eurozone has no effect on the direction of WisdomTree Europe i.e., WisdomTree Europe and First Trust go up and down completely randomly.

Pair Corralation between WisdomTree Europe and First Trust

Given the investment horizon of 90 days WisdomTree Europe Hedged is expected to generate 0.8 times more return on investment than First Trust. However, WisdomTree Europe Hedged is 1.25 times less risky than First Trust. It trades about 0.04 of its potential returns per unit of risk. First Trust Eurozone is currently generating about 0.03 per unit of risk. If you would invest  4,161  in WisdomTree Europe Hedged on September 12, 2024 and sell it today you would earn a total of  319.00  from holding WisdomTree Europe Hedged or generate 7.67% return on investment over 90 days.

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

WisdomTree Europe Hedged  vs.  First Trust Eurozone

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.

First Trust Eurozone

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Eurozone has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree Europe and First Trust

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

The idea behind WisdomTree Europe Hedged and First Trust Eurozone 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .