Correlation Between WisdomTree International and WisdomTree Europe

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

Diversification Opportunities for WisdomTree International and WisdomTree Europe

0.55

Correlation Coefficient

WisdomTree International  WisdomTree Europe

Very weak diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International Hedge and WisdomTree Europe Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe Hedged 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 WisdomTree Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Europe Hedged has no effect on the direction of WisdomTree International i.e., WisdomTree International and WisdomTree Europe go up and down completely randomly.

Pair Corralation between WisdomTree International and WisdomTree Europe

Given the investment horizon of 90 days WisdomTree International is expected to generate 4.76 times less return on investment than WisdomTree Europe. In addition to that, WisdomTree International is 1.03 times more volatile than WisdomTree Europe Hedged. It trades about 0.06 of its total potential returns per unit of risk. WisdomTree Europe Hedged is currently generating about 0.29 per unit of volatility. If you would invest  3,807  in WisdomTree Europe Hedged on December 25, 2024 and sell it today you would earn a total of  521.00  from holding WisdomTree Europe Hedged or generate 13.69% return on investment over 90 days.

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

WisdomTree International Hedge  vs.  WisdomTree Europe Hedged

WisdomTree International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree International Hedged are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

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 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, WisdomTree Europe exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WisdomTree International and WisdomTree Europe

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

The idea behind WisdomTree International Hedged and WisdomTree Europe Hedged 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.

Check out your portfolio center.

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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.