Correlation Between IShares India and WisdomTree India

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

By analyzing existing cross correlation between iShares India 50 and WisdomTree India Earnings, you can compare the effects of market volatilities on IShares India and WisdomTree India 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 India with a short position of WisdomTree India. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares India and WisdomTree India.

Diversification Opportunities for IShares India and WisdomTree India

0.99

Correlation Coefficient

IShares India  WisdomTree India

No risk reduction

The 3 months correlation between IShares and WisdomTree is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares India 50 and WisdomTree India Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree India Earnings and IShares India 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 India 50 are associated (or correlated) with WisdomTree India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree India Earnings has no effect on the direction of IShares India i.e., IShares India and WisdomTree India go up and down completely randomly.

Pair Corralation between IShares India and WisdomTree India

Given the investment horizon of 90 days iShares India 50 is expected to generate 0.91 times more return on investment than WisdomTree India. However, iShares India 50 is 1.1 times less risky than WisdomTree India. It trades about -0.08 of its potential returns per unit of risk. WisdomTree India Earnings is currently generating about -0.08 per unit of risk. If you would invest  5,547  in iShares India 50 on September 17, 2024 and sell it today you would lose (220.00) from holding iShares India 50 or give up 3.97% of portfolio value over 90 days.

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

iShares India 50  vs.  WisdomTree India Earnings

iShares India 50

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares India 50 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, IShares India is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

WisdomTree India Earnings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree India Earnings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, WisdomTree India is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares India and WisdomTree India

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

The idea behind iShares India 50 and WisdomTree India Earnings 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.