Correlation Between IShares MSCI and WisdomTree China

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

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

Diversification Opportunities for IShares MSCI and WisdomTree China

0.93

Correlation Coefficient

IShares MSCI  WisdomTree China

Almost no diversification

The 3 months correlation between IShares and WisdomTree is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Intl and WisdomTree China ex State Owne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree China and IShares MSCI 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 MSCI Intl are associated (or correlated) with WisdomTree China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree China has no effect on the direction of IShares MSCI i.e., IShares MSCI and WisdomTree China go up and down completely randomly.

Pair Corralation between IShares MSCI and WisdomTree China

Given the investment horizon of 90 days IShares MSCI is expected to generate 1.77 times less return on investment than WisdomTree China. But when comparing it to its historical volatility, iShares MSCI Intl is 2.09 times less risky than WisdomTree China. It trades about 0.15 of its potential returns per unit of risk. WisdomTree China ex State Owned is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,009  in WisdomTree China ex State Owned on December 29, 2024 and sell it today you would earn a total of  406.00  from holding WisdomTree China ex State Owned or generate 13.49% return on investment over 90 days.

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

iShares MSCI Intl  vs.  WisdomTree China ex State Owne

iShares MSCI Intl

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Intl are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating essential indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

WisdomTree China

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree China ex State Owned are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, WisdomTree China exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and WisdomTree China

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

The idea behind iShares MSCI Intl and WisdomTree China ex State Owned 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.