Correlation Between WisdomTree Europe and Vanguard Real

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

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

Diversification Opportunities for WisdomTree Europe and Vanguard Real

Poor diversification

The 3 months correlation between WisdomTree and Vanguard is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Europe Hedged and Vanguard Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Real Estate and WisdomTree Europe 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 Europe Hedged are associated (or correlated) with Vanguard Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Real Estate has no effect on the direction of WisdomTree Europe i.e., WisdomTree Europe and Vanguard Real go up and down completely randomly.

Pair Corralation between WisdomTree Europe and Vanguard Real

Given the investment horizon of 90 days WisdomTree Europe Hedged is expected to generate 0.67 times more return on investment than Vanguard Real. However, WisdomTree Europe Hedged is 1.49 times less risky than Vanguard Real. It trades about -0.22 of its potential returns per unit of risk. Vanguard Real Estate is currently generating about -0.34 per unit of risk. If you would invest  3,414  in WisdomTree Europe Hedged on July 2, 2023 and sell it today you would lose (110.00) from holding WisdomTree Europe Hedged or give up 3.22% of portfolio value over 90 days.

WisdomTree Europe Hedged  vs.  Vanguard Real Estate

WisdomTree Europe Hedged

WisdomTree Performance

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Over the last 90 days WisdomTree Europe Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, WisdomTree Europe is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard Real Estate

Vanguard Performance

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Over the last 90 days Vanguard Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with WisdomTree Europe and Vanguard Real

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

The idea behind WisdomTree Europe Hedged and Vanguard Real Estate 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.