Correlation Between WisdomTree International and First Trust
Can any of the company-specific risk be diversified away by investing in both WisdomTree International and First Trust 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 First Trust 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 First Trust STOXX, you can compare the effects of market volatilities on WisdomTree International and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree International and First Trust.
Diversification Opportunities for WisdomTree International and First Trust
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between WisdomTree and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International Hedge and First Trust STOXX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust STOXX 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust STOXX has no effect on the direction of WisdomTree International i.e., WisdomTree International and First Trust go up and down completely randomly.
Pair Corralation between WisdomTree International and First Trust
Given the investment horizon of 90 days WisdomTree International Hedged is expected to generate 0.63 times more return on investment than First Trust. However, WisdomTree International Hedged is 1.58 times less risky than First Trust. It trades about -0.16 of its potential returns per unit of risk. First Trust STOXX is currently generating about -0.13 per unit of risk. If you would invest 4,493 in WisdomTree International Hedged on August 30, 2024 and sell it today you would lose (110.00) from holding WisdomTree International Hedged or give up 2.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
WisdomTree International Hedge vs. First Trust STOXX
Performance |
| Timeline |
| WisdomTree International |
| First Trust STOXX |
WisdomTree International and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree International and First Trust
The main advantage of trading using opposite WisdomTree International and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree International position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.The idea behind WisdomTree International Hedged and First Trust STOXX 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.
| First Trust vs. First Trust Dow | First Trust vs. WisdomTree Europe SmallCap | First Trust vs. WisdomTree International High | First Trust vs. WisdomTree Global High |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
Other Complementary Tools
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume |