Correlation Between WisdomTree International and ALPS Emerging

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

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

Diversification Opportunities for WisdomTree International and ALPS Emerging

0.8

Correlation Coefficient

WisdomTree International  ALPS Emerging

Very poor diversification

The 3 months correlation between WisdomTree and ALPS is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International Hedge and ALPS Emerging Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS Emerging Sector and WisdomTree International 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 International Hedged are associated (or correlated) with ALPS Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS Emerging Sector has no effect on the direction of WisdomTree International i.e., WisdomTree International and ALPS Emerging go up and down completely randomly.

Pair Corralation between WisdomTree International and ALPS Emerging

Given the investment horizon of 90 days WisdomTree International Hedged is expected to generate 0.77 times more return on investment than ALPS Emerging. However, WisdomTree International Hedged is 1.3 times less risky than ALPS Emerging. It trades about -0.01 of its potential returns per unit of risk. ALPS Emerging Sector is currently generating about -0.11 per unit of risk. If you would invest  4,355  in WisdomTree International Hedged on September 21, 2024 and sell it today you would lose (7.00) from holding WisdomTree International Hedged or give up 0.16% of portfolio value over 90 days.

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

WisdomTree International Hedge  vs.  ALPS Emerging Sector

WisdomTree International

Risk-Adjusted Performance

0 of 100

Very Weak

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

ALPS Emerging Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALPS Emerging Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ALPS Emerging 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 International and ALPS Emerging

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

The idea behind WisdomTree International Hedged and ALPS Emerging Sector 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.