Correlation Between WisdomTree SmallCap and WisdomTree Japan
Can any of the company-specific risk be diversified away by investing in both WisdomTree SmallCap and WisdomTree Japan 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 SmallCap and WisdomTree Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree SmallCap Quality and WisdomTree Japan Hedged, you can compare the effects of market volatilities on WisdomTree SmallCap and WisdomTree Japan 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 SmallCap with a short position of WisdomTree Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree SmallCap and WisdomTree Japan.
Diversification Opportunities for WisdomTree SmallCap and WisdomTree Japan
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between WisdomTree and WisdomTree is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Quality and WisdomTree Japan Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Japan Hedged and WisdomTree SmallCap 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 SmallCap Quality are associated (or correlated) with WisdomTree Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Japan Hedged has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and WisdomTree Japan go up and down completely randomly.
Pair Corralation between WisdomTree SmallCap and WisdomTree Japan
Given the investment horizon of 90 days WisdomTree SmallCap Quality is expected to generate 1.11 times more return on investment than WisdomTree Japan. However, WisdomTree SmallCap is 1.11 times more volatile than WisdomTree Japan Hedged. It trades about 0.13 of its potential returns per unit of risk. WisdomTree Japan Hedged is currently generating about 0.05 per unit of risk. If you would invest 5,047 in WisdomTree SmallCap Quality on August 29, 2024 and sell it today you would earn a total of 570.00 from holding WisdomTree SmallCap Quality or generate 11.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
WisdomTree SmallCap Quality vs. WisdomTree Japan Hedged
Performance |
| Timeline |
| WisdomTree SmallCap |
| WisdomTree Japan Hedged |
WisdomTree SmallCap and WisdomTree Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree SmallCap and WisdomTree Japan
The main advantage of trading using opposite WisdomTree SmallCap and WisdomTree Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree SmallCap position performs unexpectedly, WisdomTree Japan 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 Japan will offset losses from the drop in WisdomTree Japan's long position.| WisdomTree SmallCap vs. WisdomTree Emerging Markets | WisdomTree SmallCap vs. WisdomTree Interest Rate | WisdomTree SmallCap vs. WisdomTree Japan Hedged | WisdomTree SmallCap vs. WisdomTree Interest Rate |
| WisdomTree Japan vs. WisdomTree Emerging Markets | WisdomTree Japan vs. WisdomTree SmallCap Quality | WisdomTree Japan vs. First Trust Emerging | WisdomTree Japan vs. First Trust Japan |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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