Correlation Between WisdomTree Japan and Dow Jones
Can any of the company-specific risk be diversified away by investing in both WisdomTree Japan and Dow Jones 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 Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree Japan Equity and Dow Jones Industrial, you can compare the effects of market volatilities on WisdomTree Japan and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Japan and Dow Jones.
Diversification Opportunities for WisdomTree Japan and Dow Jones
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between WisdomTree and Dow is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan Equity and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Equity are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of WisdomTree Japan i.e., WisdomTree Japan and Dow Jones go up and down completely randomly.
Pair Corralation between WisdomTree Japan and Dow Jones
Assuming the 90 days trading horizon WisdomTree Japan Equity is expected to generate 2.11 times more return on investment than Dow Jones. However, WisdomTree Japan is 2.11 times more volatile than Dow Jones Industrial. It trades about 0.09 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.12 per unit of risk. If you would invest 2,406 in WisdomTree Japan Equity on August 31, 2024 and sell it today you would earn a total of 900.00 from holding WisdomTree Japan Equity or generate 37.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 72.73% |
| Values | Daily Returns |
WisdomTree Japan Equity vs. Dow Jones Industrial
Performance |
| Timeline |
WisdomTree Japan and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
WisdomTree Japan Equity
Pair trading matchups for WisdomTree Japan
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with WisdomTree Japan and Dow Jones
The main advantage of trading using opposite WisdomTree Japan and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Japan position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| WisdomTree Japan vs. iShares Core SP | WisdomTree Japan vs. iShares Core MSCI | WisdomTree Japan vs. Lyxor UCITS Stoxx |
| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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