Correlation Between WisdomTree Europe and ETF Series

Can any of the company-specific risk be diversified away by investing in both WisdomTree Europe and ETF Series 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 ETF Series 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 ETF Series Solutions, you can compare the effects of market volatilities on WisdomTree Europe and ETF Series 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 ETF Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Europe and ETF Series.

Diversification Opportunities for WisdomTree Europe and ETF Series

0.13

Correlation Coefficient

WisdomTree Europe  ETF Series

Average diversification

The 3 months correlation between WisdomTree and ETF is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Europe Hedged and ETF Series Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETF Series Solutions 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 ETF Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETF Series Solutions has no effect on the direction of WisdomTree Europe i.e., WisdomTree Europe and ETF Series go up and down completely randomly.

Pair Corralation between WisdomTree Europe and ETF Series

Given the investment horizon of 90 days WisdomTree Europe Hedged is expected to under-perform the ETF Series. In addition to that, WisdomTree Europe is 4.97 times more volatile than ETF Series Solutions. It trades about -0.07 of its total potential returns per unit of risk. ETF Series Solutions is currently generating about -0.16 per unit of volatility. If you would invest  2,344  in ETF Series Solutions on January 26, 2024 and sell it today you would lose (10.00) from holding ETF Series Solutions or give up 0.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

WisdomTree Europe Hedged  vs.  ETF Series Solutions

WisdomTree Europe Hedged

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Hedged are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in May 2024.

ETF Series Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ETF Series Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, ETF Series is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree Europe and ETF Series

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

The idea behind WisdomTree Europe Hedged and ETF Series Solutions 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.