Correlation Between WisdomTree Natural and IShares MSCI

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

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

Diversification Opportunities for WisdomTree Natural and IShares MSCI

0.27

Correlation Coefficient

WisdomTree Natural  IShares MSCI

Modest diversification

The 3 months correlation between WisdomTree and IShares is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Natural Gas and iShares MSCI Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Japan and WisdomTree Natural 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 WisdomTree Natural Gas are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Japan has no effect on the direction of WisdomTree Natural i.e., WisdomTree Natural and IShares MSCI go up and down completely randomly.

Pair Corralation between WisdomTree Natural and IShares MSCI

Assuming the 90 days trading horizon WisdomTree Natural Gas is expected to under-perform the IShares MSCI. In addition to that, WisdomTree Natural is 3.35 times more volatile than iShares MSCI Japan. It trades about -0.1 of its total potential returns per unit of risk. iShares MSCI Japan is currently generating about 0.06 per unit of volatility. If you would invest  405.00  in iShares MSCI Japan on September 5, 2024 and sell it today you would earn a total of  114.00  from holding iShares MSCI Japan or generate 28.15% return on investment over 90 days.

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

WisdomTree Natural Gas  vs.  iShares MSCI Japan

WisdomTree Natural Gas

Risk-Adjusted Performance

0 of 100

Weak

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

iShares MSCI Japan

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Japan are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with WisdomTree Natural and IShares MSCI

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

The idea behind WisdomTree Natural Gas and iShares MSCI Japan 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.