Correlation Between Xtrackers USD and WisdomTree Emerging

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Can any of the company-specific risk be diversified away by investing in both Xtrackers USD and WisdomTree Emerging 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 USD and WisdomTree Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xtrackers USD High and WisdomTree Emerging Currency, you can compare the effects of market volatilities on Xtrackers USD and WisdomTree Emerging 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 USD with a short position of WisdomTree Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers USD and WisdomTree Emerging.

Diversification Opportunities for Xtrackers USD and WisdomTree Emerging

0.45
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Xtrackers and WisdomTree is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers USD High and WisdomTree Emerging Currency in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging and Xtrackers USD 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 USD High are associated (or correlated) with WisdomTree Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of Xtrackers USD i.e., Xtrackers USD and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between Xtrackers USD and WisdomTree Emerging

Given the investment horizon of 90 days Xtrackers USD High is expected to generate 0.62 times more return on investment than WisdomTree Emerging. However, Xtrackers USD High is 1.62 times less risky than WisdomTree Emerging. It trades about 0.31 of its potential returns per unit of risk. WisdomTree Emerging Currency is currently generating about 0.14 per unit of risk. If you would invest  3,538  in Xtrackers USD High on April 22, 2024 and sell it today you would earn a total of  46.00  from holding Xtrackers USD High or generate 1.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Xtrackers USD High  vs.  WisdomTree Emerging Currency

 Performance 
       Timeline  
Xtrackers USD High 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers USD High are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Xtrackers USD is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
WisdomTree Emerging 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Emerging Currency are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical and fundamental indicators, WisdomTree Emerging is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Xtrackers USD and WisdomTree Emerging Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Xtrackers USD and WisdomTree Emerging

The main advantage of trading using opposite Xtrackers USD and WisdomTree Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers USD position performs unexpectedly, WisdomTree Emerging 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 Emerging will offset losses from the drop in WisdomTree Emerging's long position.
The idea behind Xtrackers USD High and WisdomTree Emerging Currency 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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