Correlation Between IShares Core and WisdomTree STOXX

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

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

Diversification Opportunities for IShares Core and WisdomTree STOXX

-0.69

Correlation Coefficient

IShares Core  WisdomTree STOXX

Excellent diversification

The 3 months correlation between IShares and WisdomTree is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and WisdomTree STOXX Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree STOXX Europe and IShares Core 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 Core SP are associated (or correlated) with WisdomTree STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree STOXX Europe has no effect on the direction of IShares Core i.e., IShares Core and WisdomTree STOXX go up and down completely randomly.

Pair Corralation between IShares Core and WisdomTree STOXX

Assuming the 90 days trading horizon IShares Core is expected to generate 1.58 times less return on investment than WisdomTree STOXX. But when comparing it to its historical volatility, iShares Core SP is 3.43 times less risky than WisdomTree STOXX. It trades about 0.27 of its potential returns per unit of risk. WisdomTree STOXX Europe is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,808  in WisdomTree STOXX Europe on September 19, 2024 and sell it today you would earn a total of  106.00  from holding WisdomTree STOXX Europe or generate 5.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

iShares Core SP  vs.  WisdomTree STOXX Europe

iShares Core SP

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree STOXX Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree STOXX Europe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with IShares Core and WisdomTree STOXX

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

The idea behind iShares Core SP and WisdomTree STOXX Europe 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.