Correlation Between Lyxor MSCI and WisdomTree Europe

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

By analyzing existing cross correlation between Lyxor MSCI Emerging and WisdomTree Europe Equity, you can compare the effects of market volatilities on Lyxor MSCI 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 Lyxor MSCI with a short position of WisdomTree Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lyxor MSCI and WisdomTree Europe.

Diversification Opportunities for Lyxor MSCI and WisdomTree Europe

-0.69

Correlation Coefficient

Lyxor MSCI  WisdomTree Europe

Excellent diversification

The 3 months correlation between Lyxor and WisdomTree is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Lyxor MSCI Emerging and WisdomTree Europe Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe Equity and Lyxor 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 Lyxor MSCI Emerging 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 Equity has no effect on the direction of Lyxor MSCI i.e., Lyxor MSCI and WisdomTree Europe go up and down completely randomly.

Pair Corralation between Lyxor MSCI and WisdomTree Europe

Assuming the 90 days trading horizon Lyxor MSCI Emerging is expected to generate 4.7 times more return on investment than WisdomTree Europe. However, Lyxor MSCI is 4.7 times more volatile than WisdomTree Europe Equity. It trades about 0.06 of its potential returns per unit of risk. WisdomTree Europe Equity is currently generating about -0.07 per unit of risk. If you would invest  1,316  in Lyxor MSCI Emerging on September 4, 2024 and sell it today you would earn a total of  30.00  from holding Lyxor MSCI Emerging or generate 2.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	34.38%
Values	Daily Returns

Lyxor MSCI Emerging  vs.  WisdomTree Europe Equity

Lyxor MSCI Emerging

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Lyxor MSCI Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively weak basic indicators, Lyxor MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree Europe Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Europe Equity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, WisdomTree Europe is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Lyxor MSCI and WisdomTree Europe

The main advantage of trading using opposite Lyxor MSCI and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lyxor MSCI 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 Lyxor MSCI Emerging and WisdomTree Europe Equity 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.