Correlation Between WisdomTree and WisdomTree STOXX

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

By analyzing existing cross correlation between WisdomTree SP 500 and WisdomTree STOXX Europe, you can compare the effects of market volatilities on WisdomTree 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 WisdomTree with a short position of WisdomTree STOXX. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree and WisdomTree STOXX.

Diversification Opportunities for WisdomTree and WisdomTree STOXX

-0.56

Correlation Coefficient

WisdomTree  WisdomTree STOXX

Excellent diversification

The 3 months correlation between WisdomTree and WisdomTree is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SP 500 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 WisdomTree 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 SP 500 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 WisdomTree i.e., WisdomTree and WisdomTree STOXX go up and down completely randomly.

Pair Corralation between WisdomTree and WisdomTree STOXX

Assuming the 90 days trading horizon WisdomTree is expected to generate 1.27 times less return on investment than WisdomTree STOXX. In addition to that, WisdomTree is 1.11 times more volatile than WisdomTree STOXX Europe. It trades about 0.14 of its total potential returns per unit of risk. WisdomTree STOXX Europe is currently generating about 0.2 per unit of volatility. If you would invest  1,725  in WisdomTree STOXX Europe on September 21, 2024 and sell it today you would earn a total of  163.00  from holding WisdomTree STOXX Europe or generate 9.45% return on investment over 90 days.

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

WisdomTree SP 500  vs.  WisdomTree STOXX Europe

WisdomTree SP 500

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SP 500 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WisdomTree reported solid returns over the last few months and may actually be approaching a breakup point.

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 unsteady 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 WisdomTree and WisdomTree STOXX

The main advantage of trading using opposite WisdomTree and WisdomTree STOXX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree 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 WisdomTree SP 500 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.