Correlation Between FlexShares International and WisdomTree International
Can any of the company-specific risk be diversified away by investing in both FlexShares International and WisdomTree International 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 FlexShares International and WisdomTree International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FlexShares International Quality and WisdomTree International Hedged, you can compare the effects of market volatilities on FlexShares International and WisdomTree International 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 FlexShares International with a short position of WisdomTree International. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares International and WisdomTree International.
Diversification Opportunities for FlexShares International and WisdomTree International
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between FlexShares and WisdomTree is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares International Quali and WisdomTree International Hedge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree International and FlexShares 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 FlexShares International Quality are associated (or correlated) with WisdomTree International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree International has no effect on the direction of FlexShares International i.e., FlexShares International and WisdomTree International go up and down completely randomly.
Pair Corralation between FlexShares International and WisdomTree International
Given the investment horizon of 90 days FlexShares International Quality is expected to under-perform the WisdomTree International. In addition to that, FlexShares International is 1.32 times more volatile than WisdomTree International Hedged. It trades about -0.12 of its total potential returns per unit of risk. WisdomTree International Hedged is currently generating about 0.04 per unit of volatility. If you would invest 4,407 in WisdomTree International Hedged on September 3, 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 | 100.0% |
| Values | Daily Returns |
FlexShares International Quali vs. WisdomTree International Hedge
Performance |
| Timeline |
| FlexShares International |
| WisdomTree International |
FlexShares International and WisdomTree International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FlexShares International and WisdomTree International
The main advantage of trading using opposite FlexShares International and WisdomTree International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares International position performs unexpectedly, WisdomTree International 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 International will offset losses from the drop in WisdomTree International's long position.The idea behind FlexShares International Quality and WisdomTree International Hedged 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.
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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