Correlation Between WisdomTree International and Invesco FTSE
Can any of the company-specific risk be diversified away by investing in both WisdomTree International and Invesco 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 International and Invesco FTSE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree International SmallCap and Invesco FTSE RAFI, you can compare the effects of market volatilities on WisdomTree International and Invesco 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 International with a short position of Invesco FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree International and Invesco FTSE.
Diversification Opportunities for WisdomTree International and Invesco FTSE
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between WisdomTree and Invesco is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International Small and Invesco FTSE RAFI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco FTSE RAFI 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 SmallCap are associated (or correlated) with Invesco FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco FTSE RAFI has no effect on the direction of WisdomTree International i.e., WisdomTree International and Invesco FTSE go up and down completely randomly.
Pair Corralation between WisdomTree International and Invesco FTSE
Considering the 90-day investment horizon WisdomTree International SmallCap is expected to generate 0.99 times more return on investment than Invesco FTSE. However, WisdomTree International SmallCap is 1.01 times less risky than Invesco FTSE. It trades about -0.11 of its potential returns per unit of risk. Invesco FTSE RAFI is currently generating about -0.13 per unit of risk. If you would invest 6,497 in WisdomTree International SmallCap on August 24, 2024 and sell it today you would lose (123.00) from holding WisdomTree International SmallCap or give up 1.89% 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 Small vs. Invesco FTSE RAFI
Performance |
| Timeline |
| WisdomTree International |
| Invesco FTSE RAFI |
WisdomTree International and Invesco FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree International and Invesco FTSE
The main advantage of trading using opposite WisdomTree International and Invesco FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree International position performs unexpectedly, Invesco 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 Invesco FTSE will offset losses from the drop in Invesco FTSE's long position.The idea behind WisdomTree International SmallCap and Invesco FTSE RAFI 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.
| Invesco FTSE vs. Invesco FTSE RAFI | Invesco FTSE vs. Invesco FTSE RAFI | Invesco FTSE vs. Invesco FTSE RAFI | Invesco FTSE vs. Invesco DWA Developed |
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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