Correlation Between WisdomTree Emerging and Vanguard FTSE

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

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

Diversification Opportunities for WisdomTree Emerging and Vanguard FTSE

0.99

Correlation Coefficient

WisdomTree Emerging  Vanguard FTSE

No risk reduction

The 3 months correlation between WisdomTree and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Emerging Markets and Vanguard FTSE Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Emerging and WisdomTree Emerging 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 Emerging Markets are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Emerging has no effect on the direction of WisdomTree Emerging i.e., WisdomTree Emerging and Vanguard FTSE go up and down completely randomly.

Pair Corralation between WisdomTree Emerging and Vanguard FTSE

Given the investment horizon of 90 days WisdomTree Emerging is expected to generate 1.29 times less return on investment than Vanguard FTSE. But when comparing it to its historical volatility, WisdomTree Emerging Markets is 1.0 times less risky than Vanguard FTSE. It trades about 0.04 of its potential returns per unit of risk. Vanguard FTSE Emerging is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,391  in Vanguard FTSE Emerging on September 1, 2024 and sell it today you would earn a total of  166.00  from holding Vanguard FTSE Emerging or generate 3.78% return on investment over 90 days.

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

WisdomTree Emerging Markets  vs.  Vanguard FTSE Emerging

WisdomTree Emerging

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Emerging Markets are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, WisdomTree Emerging is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard FTSE Emerging

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Emerging are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard FTSE is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree Emerging and Vanguard FTSE

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

The idea behind WisdomTree Emerging Markets and Vanguard FTSE Emerging 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.