Correlation Between WisdomTree Japan and Franklin FTSE

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

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

Diversification Opportunities for WisdomTree Japan and Franklin FTSE

0.49

Correlation Coefficient

WisdomTree Japan  Franklin FTSE

Very weak diversification

The 3 months correlation between WisdomTree and Franklin is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan Hedged and Franklin FTSE Germany in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin FTSE Germany and WisdomTree Japan 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 Japan Hedged are associated (or correlated) with Franklin FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin FTSE Germany has no effect on the direction of WisdomTree Japan i.e., WisdomTree Japan and Franklin FTSE go up and down completely randomly.

Pair Corralation between WisdomTree Japan and Franklin FTSE

Given the investment horizon of 90 days WisdomTree Japan Hedged is expected to generate 1.13 times more return on investment than Franklin FTSE. However, WisdomTree Japan is 1.13 times more volatile than Franklin FTSE Germany. It trades about 0.11 of its potential returns per unit of risk. Franklin FTSE Germany is currently generating about 0.1 per unit of risk. If you would invest  3,230  in WisdomTree Japan Hedged on March 5, 2024 and sell it today you would earn a total of  208.00  from holding WisdomTree Japan Hedged or generate 6.44% return on investment over 90 days.

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

WisdomTree Japan Hedged  vs.  Franklin FTSE Germany

WisdomTree Japan Hedged

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Japan Hedged are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady forward-looking indicators, WisdomTree Japan may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Franklin FTSE Germany

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin FTSE Germany are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Franklin FTSE is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with WisdomTree Japan and Franklin FTSE

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

The idea behind WisdomTree Japan Hedged and Franklin FTSE Germany 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.

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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.