Correlation Between IShares MSCI and WisdomTree Europe

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

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

Diversification Opportunities for IShares MSCI and WisdomTree Europe

0.75

Correlation Coefficient

IShares MSCI  WisdomTree Europe

Poor diversification

The 3 months correlation between IShares and WisdomTree is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Europe and WisdomTree Europe Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe Quality and IShares MSCI 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 iShares MSCI Europe are associated (or correlated) with WisdomTree Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Europe Quality has no effect on the direction of IShares MSCI i.e., IShares MSCI and WisdomTree Europe go up and down completely randomly.

Pair Corralation between IShares MSCI and WisdomTree Europe

Given the investment horizon of 90 days iShares MSCI Europe is expected to generate 1.29 times more return on investment than WisdomTree Europe. However, IShares MSCI is 1.29 times more volatile than WisdomTree Europe Quality. It trades about -0.09 of its potential returns per unit of risk. WisdomTree Europe Quality is currently generating about -0.15 per unit of risk. If you would invest  5,639  in iShares MSCI Europe on January 30, 2024 and sell it today you would lose (103.00) from holding iShares MSCI Europe or give up 1.83% of portfolio value over 90 days.

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

iShares MSCI Europe  vs.  WisdomTree Europe Quality

iShares MSCI Europe

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Europe are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree Europe Quality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Europe Quality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, WisdomTree Europe is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares MSCI and WisdomTree Europe

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

The idea behind iShares MSCI Europe and WisdomTree Europe Quality 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..