Correlation Between Xtrackers MSCI and WisdomTree Europe

Can any of the company-specific risk be diversified away by investing in both Xtrackers MSCI and WisdomTree Europe 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 Xtrackers MSCI and WisdomTree Europe into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xtrackers MSCI Japan and WisdomTree Europe SmallCap, you can compare the effects of market volatilities on Xtrackers MSCI and WisdomTree Europe 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 Xtrackers MSCI with a short position of WisdomTree Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers MSCI and WisdomTree Europe.

Diversification Opportunities for Xtrackers MSCI and WisdomTree Europe

0.59

Correlation Coefficient

Xtrackers MSCI  WisdomTree Europe

Very weak diversification

The 3 months correlation between Xtrackers and WisdomTree is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI Japan and WisdomTree Europe SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe and Xtrackers MSCI 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 Xtrackers MSCI Japan are associated (or correlated) with WisdomTree Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Europe has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and WisdomTree Europe go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and WisdomTree Europe

Given the investment horizon of 90 days Xtrackers MSCI is expected to generate 3.4 times less return on investment than WisdomTree Europe. In addition to that, Xtrackers MSCI is 1.21 times more volatile than WisdomTree Europe SmallCap. It trades about 0.11 of its total potential returns per unit of risk. WisdomTree Europe SmallCap is currently generating about 0.45 per unit of volatility. If you would invest  5,854  in WisdomTree Europe SmallCap on February 24, 2024 and sell it today you would earn a total of  416.00  from holding WisdomTree Europe SmallCap or generate 7.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Xtrackers MSCI Japan  vs.  WisdomTree Europe SmallCap

Xtrackers MSCI Japan

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI Japan are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking indicators, Xtrackers MSCI is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

WisdomTree Europe

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe SmallCap are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Xtrackers MSCI and WisdomTree Europe

The main advantage of trading using opposite Xtrackers MSCI and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers MSCI position performs unexpectedly, WisdomTree Europe 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 Europe will offset losses from the drop in WisdomTree Europe's long position.

The idea behind Xtrackers MSCI Japan and WisdomTree Europe SmallCap 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.