Correlation Between WisdomTree International and WisdomTree Dynamic
Can any of the company-specific risk be diversified away by investing in both WisdomTree International and WisdomTree Dynamic 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 Dynamic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree International Hedged and WisdomTree Dynamic Currency, you can compare the effects of market volatilities on WisdomTree International and WisdomTree Dynamic 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 Dynamic. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree International and WisdomTree Dynamic.
Diversification Opportunities for WisdomTree International and WisdomTree Dynamic
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between WisdomTree and WisdomTree is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International Hedge and WisdomTree Dynamic Currency in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Dynamic 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 Hedged are associated (or correlated) with WisdomTree Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Dynamic has no effect on the direction of WisdomTree International i.e., WisdomTree International and WisdomTree Dynamic go up and down completely randomly.
Pair Corralation between WisdomTree International and WisdomTree Dynamic
Given the investment horizon of 90 days WisdomTree International Hedged is expected to generate 1.09 times more return on investment than WisdomTree Dynamic. However, WisdomTree International is 1.09 times more volatile than WisdomTree Dynamic Currency. It trades about 0.04 of its potential returns per unit of risk. WisdomTree Dynamic Currency is currently generating about 0.01 per unit of risk. If you would invest 4,407 in WisdomTree International Hedged on September 1, 2024 and sell it today you would earn a total of 24.00 from holding WisdomTree International Hedged or generate 0.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
WisdomTree International Hedge vs. WisdomTree Dynamic Currency
Performance |
| Timeline |
| WisdomTree International |
| WisdomTree Dynamic |
WisdomTree International and WisdomTree Dynamic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree International and WisdomTree Dynamic
The main advantage of trading using opposite WisdomTree International and WisdomTree Dynamic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree International position performs unexpectedly, WisdomTree Dynamic 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 Dynamic will offset losses from the drop in WisdomTree Dynamic's long position.The idea behind WisdomTree International Hedged and WisdomTree Dynamic Currency 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.
| WisdomTree Dynamic vs. WisdomTree Dynamic Currency | WisdomTree Dynamic vs. WisdomTree International Hedged | WisdomTree Dynamic vs. WisdomTree Europe Hedged | WisdomTree Dynamic vs. Xtrackers MSCI All |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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