Correlation Between WisdomTree International and WisdomTree Emerging
Can any of the company-specific risk be diversified away by investing in both WisdomTree International 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 WisdomTree International and WisdomTree Emerging 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 Emerging Markets, you can compare the effects of market volatilities on WisdomTree International 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 WisdomTree International with a short position of WisdomTree Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree International and WisdomTree Emerging.
Diversification Opportunities for WisdomTree International and WisdomTree Emerging
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between WisdomTree and WisdomTree is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International MidCa and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging 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 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 WisdomTree International i.e., WisdomTree International and WisdomTree Emerging go up and down completely randomly.
Pair Corralation between WisdomTree International and WisdomTree Emerging
Considering the 90-day investment horizon WisdomTree International MidCap is expected to under-perform the WisdomTree Emerging. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree International MidCap is 1.01 times less risky than WisdomTree Emerging. The etf trades about -0.13 of its potential returns per unit of risk. The WisdomTree Emerging Markets is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest 5,145 in WisdomTree Emerging Markets on August 28, 2024 and sell it today you would lose (98.00) from holding WisdomTree Emerging Markets or give up 1.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
WisdomTree International MidCa vs. WisdomTree Emerging Markets
Performance |
| Timeline |
| WisdomTree International |
| WisdomTree Emerging |
WisdomTree International and WisdomTree Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree International and WisdomTree Emerging
The main advantage of trading using opposite WisdomTree International and WisdomTree Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree International 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 WisdomTree International MidCap 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.
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 CEOs Directory module to screen CEOs from public companies around the world.
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