Correlation Between WisdomTree Japan and Xtrackers MSCI

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

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

Diversification Opportunities for WisdomTree Japan and Xtrackers MSCI

0.77

Correlation Coefficient

WisdomTree Japan  Xtrackers MSCI

Poor diversification

The 3 months correlation between WisdomTree and Xtrackers is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan SmallCap and Xtrackers MSCI Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI Japan and WisdomTree Japan 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 Japan SmallCap are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI Japan has no effect on the direction of WisdomTree Japan i.e., WisdomTree Japan and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between WisdomTree Japan and Xtrackers MSCI

Considering the 90-day investment horizon WisdomTree Japan SmallCap is expected to under-perform the Xtrackers MSCI. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree Japan SmallCap is 1.25 times less risky than Xtrackers MSCI. The etf trades about -0.02 of its potential returns per unit of risk. The Xtrackers MSCI Japan is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,150  in Xtrackers MSCI Japan on January 29, 2024 and sell it today you would earn a total of  249.00  from holding Xtrackers MSCI Japan or generate 3.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

WisdomTree Japan SmallCap  vs.  Xtrackers MSCI Japan

WisdomTree Japan SmallCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Japan SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady technical and fundamental indicators, WisdomTree Japan is not utilizing all of its potentials. The newest stock price chaos, may contribute to medium-term losses for the stakeholders.

Xtrackers MSCI Japan

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI Japan are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward-looking indicators, Xtrackers MSCI may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with WisdomTree Japan and Xtrackers MSCI

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

The idea behind WisdomTree Japan SmallCap and Xtrackers MSCI Japan 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.