Correlation Between IShares Russell and WisdomTree International

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

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

Diversification Opportunities for IShares Russell and WisdomTree International

-0.44

Correlation Coefficient

IShares Russell  WisdomTree International

Very good diversification

The 3 months correlation between IShares and WisdomTree is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell Mid Cap and WisdomTree International Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree International and IShares Russell 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 Russell Mid Cap are associated (or correlated) with WisdomTree International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree International has no effect on the direction of IShares Russell i.e., IShares Russell and WisdomTree International go up and down completely randomly.

Pair Corralation between IShares Russell and WisdomTree International

Considering the 90-day investment horizon iShares Russell Mid Cap is expected to under-perform the WisdomTree International. In addition to that, IShares Russell is 1.14 times more volatile than WisdomTree International SmallCap. It trades about -0.05 of its total potential returns per unit of risk. WisdomTree International SmallCap is currently generating about 0.14 per unit of volatility. If you would invest  6,265  in WisdomTree International SmallCap on December 30, 2024 and sell it today you would earn a total of  416.00  from holding WisdomTree International SmallCap or generate 6.64% return on investment over 90 days.

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

iShares Russell Mid Cap  vs.  WisdomTree International Small

iShares Russell Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Russell Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Russell is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree International SmallCap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating essential indicators, WisdomTree International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares Russell and WisdomTree International

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

The idea behind iShares Russell Mid Cap and WisdomTree International SmallCap 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.