Correlation Between IShares Core and WisdomTree Emerging

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

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

Diversification Opportunities for IShares Core and WisdomTree Emerging

0.92

Correlation Coefficient

IShares Core  WisdomTree Emerging

Almost no diversification

The 3 months correlation between IShares and WisdomTree is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging and IShares Core 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 Core MSCI are associated (or correlated) with WisdomTree Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of IShares Core i.e., IShares Core and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between IShares Core and WisdomTree Emerging

Given the investment horizon of 90 days IShares Core is expected to generate 1.18 times less return on investment than WisdomTree Emerging. But when comparing it to its historical volatility, iShares Core MSCI is 1.04 times less risky than WisdomTree Emerging. It trades about 0.04 of its potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,817  in WisdomTree Emerging Markets on September 25, 2024 and sell it today you would earn a total of  297.00  from holding WisdomTree Emerging Markets or generate 10.54% return on investment over 90 days.

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

iShares Core MSCI  vs.  WisdomTree Emerging Markets

iShares Core MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

WisdomTree Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Emerging Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, WisdomTree Emerging is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Core and WisdomTree Emerging

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

The idea behind iShares Core MSCI and WisdomTree Emerging Markets 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.