Correlation Between WisdomTree International and WisdomTree Emerging

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

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

Diversification Opportunities for WisdomTree International and WisdomTree Emerging

0.84

Correlation Coefficient

WisdomTree International  WisdomTree Emerging

Very poor diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International Multi and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging and WisdomTree International 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 International Multifactor 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 WisdomTree International i.e., WisdomTree International and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between WisdomTree International and WisdomTree Emerging

Given the investment horizon of 90 days WisdomTree International is expected to generate 2.29 times less return on investment than WisdomTree Emerging. But when comparing it to its historical volatility, WisdomTree International Multifactor is 1.61 times less risky than WisdomTree Emerging. It trades about 0.22 of its potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  4,189  in WisdomTree Emerging Markets on March 2, 2024 and sell it today you would earn a total of  190.00  from holding WisdomTree Emerging Markets or generate 4.54% return on investment over 90 days.

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

WisdomTree International Multi  vs.  WisdomTree Emerging Markets

WisdomTree International

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree International Multifactor are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, WisdomTree International is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

WisdomTree Emerging

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Emerging Markets are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, WisdomTree Emerging is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with WisdomTree International and WisdomTree Emerging

The main advantage of trading using opposite WisdomTree International and WisdomTree Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree International 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 WisdomTree International Multifactor and WisdomTree Emerging Markets 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.