Correlation Between WisdomTree Japan and WisdomTree International
Can any of the company-specific risk be diversified away by investing in both WisdomTree Japan and WisdomTree International 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 Japan and WisdomTree International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree Japan SmallCap and WisdomTree International High, you can compare the effects of market volatilities on WisdomTree Japan and WisdomTree International 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 Japan with a short position of WisdomTree International. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Japan and WisdomTree International.
Diversification Opportunities for WisdomTree Japan and WisdomTree International
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between WisdomTree and WisdomTree is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan SmallCap and WisdomTree International High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree International and WisdomTree Japan 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 Japan SmallCap are associated (or correlated) with WisdomTree International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree International has no effect on the direction of WisdomTree Japan i.e., WisdomTree Japan and WisdomTree International go up and down completely randomly.
Pair Corralation between WisdomTree Japan and WisdomTree International
Considering the 90-day investment horizon WisdomTree Japan SmallCap is expected to generate 1.12 times more return on investment than WisdomTree International. However, WisdomTree Japan is 1.12 times more volatile than WisdomTree International High. It trades about 0.06 of its potential returns per unit of risk. WisdomTree International High is currently generating about 0.04 per unit of risk. If you would invest 5,998 in WisdomTree Japan SmallCap on August 28, 2024 and sell it today you would earn a total of 1,603 from holding WisdomTree Japan SmallCap or generate 26.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
WisdomTree Japan SmallCap vs. WisdomTree International High
Performance |
| Timeline |
| WisdomTree Japan SmallCap |
| WisdomTree International |
WisdomTree Japan and WisdomTree International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree Japan and WisdomTree International
The main advantage of trading using opposite WisdomTree Japan and WisdomTree International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Japan position performs unexpectedly, WisdomTree International 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 International will offset losses from the drop in WisdomTree International's long position.| WisdomTree Japan vs. WisdomTree Global ex US | WisdomTree Japan vs. WisdomTree Europe SmallCap | WisdomTree Japan vs. WisdomTree International MidCap | WisdomTree Japan vs. WisdomTree Global High |
Check out your portfolio center.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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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