Correlation Between IShares Currency and WisdomTree Japan

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

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

Diversification Opportunities for IShares Currency and WisdomTree Japan

0.3

Correlation Coefficient

IShares Currency  WisdomTree Japan

Weak diversification

The 3 months correlation between IShares and WisdomTree is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding iShares Currency Hedged 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 IShares Currency 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 iShares Currency Hedged 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 IShares Currency i.e., IShares Currency and WisdomTree Japan go up and down completely randomly.

Pair Corralation between IShares Currency and WisdomTree Japan

Given the investment horizon of 90 days iShares Currency Hedged is expected to under-perform the WisdomTree Japan. In addition to that, IShares Currency is 1.36 times more volatile than WisdomTree Japan SmallCap. It trades about 0.0 of its total potential returns per unit of risk. WisdomTree Japan SmallCap is currently generating about 0.13 per unit of volatility. If you would invest  7,518  in WisdomTree Japan SmallCap on December 29, 2024 and sell it today you would earn a total of  467.00  from holding WisdomTree Japan SmallCap or generate 6.21% return on investment over 90 days.

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

iShares Currency Hedged  vs.  WisdomTree Japan SmallCap

iShares Currency Hedged

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Currency Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, IShares Currency is not utilizing all of its potentials. The newest stock price chaos, may contribute to medium-term losses for the stakeholders.

WisdomTree Japan SmallCap

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Japan SmallCap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively sluggish technical and fundamental indicators, WisdomTree Japan may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares Currency and WisdomTree Japan

The main advantage of trading using opposite IShares Currency and WisdomTree Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Currency 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 iShares Currency Hedged 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.