Correlation Between Vanguard FTSE and WisdomTree Emerging

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

By analyzing existing cross correlation between Vanguard FTSE Emerging and WisdomTree Emerging Markets, you can compare the effects of market volatilities on Vanguard FTSE and WisdomTree Emerging 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 Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and WisdomTree Emerging.

Diversification Opportunities for Vanguard FTSE and WisdomTree Emerging

0.89

Correlation Coefficient

Vanguard FTSE  WisdomTree Emerging

Very poor diversification

The 3 months correlation between Vanguard and WisdomTree is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Emerging and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging 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 Emerging are associated (or correlated) with WisdomTree Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between Vanguard FTSE and WisdomTree Emerging

Considering the 90-day investment horizon Vanguard FTSE Emerging is expected to generate 1.3 times more return on investment than WisdomTree Emerging. However, Vanguard FTSE is 1.3 times more volatile than WisdomTree Emerging Markets. It trades about -0.09 of its potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about -0.19 per unit of risk. If you would invest  4,497  in Vanguard FTSE Emerging on October 5, 2024 and sell it today you would lose (83.00) from holding Vanguard FTSE Emerging or give up 1.85% of portfolio value over 90 days.

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

Vanguard FTSE Emerging  vs.  WisdomTree Emerging Markets

Vanguard FTSE Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

WisdomTree Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Emerging Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, WisdomTree Emerging is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard FTSE and WisdomTree Emerging

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

The idea behind Vanguard FTSE Emerging and WisdomTree Emerging Markets 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.