Correlation Between First Trust and WisdomTree Japan

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

Diversification Opportunities for First Trust and WisdomTree Japan

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between First and WisdomTree is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Japan and WisdomTree Japan SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Japan SmallCap and First Trust 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 First Trust Japan are associated (or correlated) with WisdomTree Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Japan SmallCap has no effect on the direction of First Trust i.e., First Trust and WisdomTree Japan go up and down completely randomly.

Pair Corralation between First Trust and WisdomTree Japan

Considering the 90-day investment horizon First Trust Japan is expected to generate 1.27 times more return on investment than WisdomTree Japan. However, First Trust is 1.27 times more volatile than WisdomTree Japan SmallCap. It trades about 0.05 of its potential returns per unit of risk. WisdomTree Japan SmallCap is currently generating about 0.06 per unit of risk. If you would invest  4,280  in First Trust Japan on December 30, 2023 and sell it today you would earn a total of  1,233  from holding First Trust Japan or generate 28.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

First Trust Japan  vs.  WisdomTree Japan SmallCap

 Performance 
       Timeline  
First Trust Japan 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Japan are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2024.
WisdomTree Japan SmallCap 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Japan SmallCap are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady technical and fundamental indicators, WisdomTree Japan is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

First Trust and WisdomTree Japan Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First Trust and WisdomTree Japan

The main advantage of trading using opposite First Trust and WisdomTree Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, WisdomTree Japan 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 Japan will offset losses from the drop in WisdomTree Japan's long position.
The idea behind First Trust Japan and WisdomTree Japan SmallCap 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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