Correlation Between Global X and WisdomTree China

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

By analyzing existing cross correlation between Global X MSCI and WisdomTree China ex State Owned, you can compare the effects of market volatilities on Global X and WisdomTree China 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 Global X with a short position of WisdomTree China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global X and WisdomTree China.

Diversification Opportunities for Global X and WisdomTree China

0.96

Correlation Coefficient

Global X  WisdomTree China

Almost no diversification

The 3 months correlation between Global and WisdomTree is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Global X MSCI and WisdomTree China ex State Owne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree China and Global X 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 Global X MSCI are associated (or correlated) with WisdomTree China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree China has no effect on the direction of Global X i.e., Global X and WisdomTree China go up and down completely randomly.

Pair Corralation between Global X and WisdomTree China

Given the investment horizon of 90 days Global X MSCI is expected to generate 1.11 times more return on investment than WisdomTree China. However, Global X is 1.11 times more volatile than WisdomTree China ex State Owned. It trades about 0.2 of its potential returns per unit of risk. WisdomTree China ex State Owned is currently generating about 0.21 per unit of risk. If you would invest  1,759  in Global X MSCI on February 2, 2024 and sell it today you would earn a total of  162.00  from holding Global X MSCI or generate 9.21% return on investment over 90 days.

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

Global X MSCI  vs.  WisdomTree China ex State Owne

Global X MSCI

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global X MSCI are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent forward indicators, Global X reported solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree China

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree China ex State Owned are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, WisdomTree China exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global X and WisdomTree China

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

The idea behind Global X MSCI and WisdomTree China ex State Owned 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.