Correlation Between Vanguard FTSE and WisdomTree Europe

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

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

Diversification Opportunities for Vanguard FTSE and WisdomTree Europe

0.82

Correlation Coefficient

Vanguard FTSE  WisdomTree Europe

Very poor diversification

The 3 months correlation between Vanguard and WisdomTree is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE All World and WisdomTree Europe Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe Hedged and Vanguard FTSE 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 Vanguard FTSE All World 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 Hedged has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and WisdomTree Europe go up and down completely randomly.

Pair Corralation between Vanguard FTSE and WisdomTree Europe

Considering the 90-day investment horizon Vanguard FTSE is expected to generate 4.51 times less return on investment than WisdomTree Europe. In addition to that, Vanguard FTSE is 1.13 times more volatile than WisdomTree Europe Hedged. It trades about 0.06 of its total potential returns per unit of risk. WisdomTree Europe Hedged is currently generating about 0.3 per unit of volatility. If you would invest  4,364  in WisdomTree Europe Hedged on December 2, 2024 and sell it today you would earn a total of  551.00  from holding WisdomTree Europe Hedged or generate 12.63% return on investment over 90 days.

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

Vanguard FTSE All World  vs.  WisdomTree Europe Hedged

Vanguard FTSE All

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE All World are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Vanguard FTSE is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree Europe Hedged

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Hedged are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively sluggish fundamental indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vanguard FTSE and WisdomTree Europe

The main advantage of trading using opposite Vanguard FTSE and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard FTSE 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 Vanguard FTSE All World and WisdomTree Europe Hedged 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.