Correlation Between WisdomTree International and WisdomTree Japan
Can any of the company-specific risk be diversified away by investing in both WisdomTree International 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 International 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 International MidCap and WisdomTree Japan SmallCap, you can compare the effects of market volatilities on WisdomTree International 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 International with a short position of WisdomTree Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree International and WisdomTree Japan.
Diversification Opportunities for WisdomTree International and WisdomTree Japan
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between WisdomTree and WisdomTree is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International MidCa and WisdomTree Japan SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Japan SmallCap and WisdomTree International 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 International MidCap 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 SmallCap has no effect on the direction of WisdomTree International i.e., WisdomTree International and WisdomTree Japan go up and down completely randomly.
Pair Corralation between WisdomTree International and WisdomTree Japan
Considering the 90-day investment horizon WisdomTree International MidCap is expected to under-perform the WisdomTree Japan. In addition to that, WisdomTree International is 1.1 times more volatile than WisdomTree Japan SmallCap. It trades about -0.13 of its total potential returns per unit of risk. WisdomTree Japan SmallCap is currently generating about 0.15 per unit of volatility. If you would invest 7,436 in WisdomTree Japan SmallCap on August 27, 2024 and sell it today you would earn a total of 165.00 from holding WisdomTree Japan SmallCap or generate 2.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
WisdomTree International MidCa vs. WisdomTree Japan SmallCap
Performance |
| Timeline |
| WisdomTree International |
| WisdomTree Japan SmallCap |
WisdomTree International and WisdomTree Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree International and WisdomTree Japan
The main advantage of trading using opposite WisdomTree International and WisdomTree Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree International 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.The idea behind WisdomTree International MidCap and WisdomTree Japan SmallCap 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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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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