Correlation Between KraneShares CSI and WisdomTree China

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

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

Diversification Opportunities for KraneShares CSI and WisdomTree China

0.9

Correlation Coefficient

KraneShares CSI  WisdomTree China

Almost no diversification

The 3 months correlation between KraneShares and WisdomTree is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding KraneShares CSI China 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 KraneShares CSI 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 KraneShares CSI China 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 KraneShares CSI i.e., KraneShares CSI and WisdomTree China go up and down completely randomly.

Pair Corralation between KraneShares CSI and WisdomTree China

Given the investment horizon of 90 days KraneShares CSI China is expected to generate 1.26 times more return on investment than WisdomTree China. However, KraneShares CSI is 1.26 times more volatile than WisdomTree China ex State Owned. It trades about 0.1 of its potential returns per unit of risk. WisdomTree China ex State Owned is currently generating about 0.09 per unit of risk. If you would invest  2,962  in KraneShares CSI China on December 4, 2024 and sell it today you would earn a total of  427.00  from holding KraneShares CSI China or generate 14.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.33%
Values	Daily Returns

KraneShares CSI China  vs.  WisdomTree China ex State Owne

KraneShares CSI China

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KraneShares CSI China are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent technical and fundamental indicators, KraneShares CSI sustained solid returns over the last few months and may actually be approaching a breakup point.

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 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, WisdomTree China may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with KraneShares CSI and WisdomTree China

The main advantage of trading using opposite KraneShares CSI and WisdomTree China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KraneShares CSI 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 KraneShares CSI China 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.

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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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.