Correlation Between WisdomTree International and Xtrackers MSCI
Can any of the company-specific risk be diversified away by investing in both WisdomTree International and Xtrackers MSCI 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 Xtrackers MSCI 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 Xtrackers MSCI EAFE, you can compare the effects of market volatilities on WisdomTree International and Xtrackers MSCI 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 Xtrackers MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree International and Xtrackers MSCI.
Diversification Opportunities for WisdomTree International and Xtrackers MSCI
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between WisdomTree and Xtrackers is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International Hedge and Xtrackers MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI EAFE 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 Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI EAFE has no effect on the direction of WisdomTree International i.e., WisdomTree International and Xtrackers MSCI go up and down completely randomly.
Pair Corralation between WisdomTree International and Xtrackers MSCI
Given the investment horizon of 90 days WisdomTree International Hedged is expected to under-perform the Xtrackers MSCI. In addition to that, WisdomTree International is 1.09 times more volatile than Xtrackers MSCI EAFE. It trades about -0.03 of its total potential returns per unit of risk. Xtrackers MSCI EAFE is currently generating about 0.02 per unit of volatility. If you would invest 2,494 in Xtrackers MSCI EAFE on September 3, 2024 and sell it today you would earn a total of 28.00 from holding Xtrackers MSCI EAFE or generate 1.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
WisdomTree International Hedge vs. Xtrackers MSCI EAFE
Performance |
| Timeline |
| WisdomTree International |
| Xtrackers MSCI EAFE |
WisdomTree International and Xtrackers MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree International and Xtrackers MSCI
The main advantage of trading using opposite WisdomTree International and Xtrackers MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree International position performs unexpectedly, Xtrackers MSCI 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 Xtrackers MSCI will offset losses from the drop in Xtrackers MSCI's long position.The idea behind WisdomTree International Hedged and Xtrackers MSCI EAFE 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.
| Xtrackers MSCI vs. iShares MSCI EAFE | Xtrackers MSCI vs. Vanguard International High | Xtrackers MSCI vs. iShares International Select | Xtrackers MSCI vs. Hartford Multifactor 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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