Correlation Between WisdomTree Japan and IShares MSCI

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

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

Diversification Opportunities for WisdomTree Japan and IShares MSCI

0.63

Correlation Coefficient

WisdomTree Japan  IShares MSCI

Poor diversification

The 3 months correlation between WisdomTree and IShares is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan Hedged and iShares MSCI Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 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 Hedged are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Japan has no effect on the direction of WisdomTree Japan i.e., WisdomTree Japan and IShares MSCI go up and down completely randomly.

Pair Corralation between WisdomTree Japan and IShares MSCI

Considering the 90-day investment horizon WisdomTree Japan Hedged is expected to generate 1.19 times more return on investment than IShares MSCI. However, WisdomTree Japan is 1.19 times more volatile than iShares MSCI Japan. It trades about 0.17 of its potential returns per unit of risk. iShares MSCI Japan is currently generating about 0.04 per unit of risk. If you would invest  7,203  in WisdomTree Japan Hedged on February 3, 2024 and sell it today you would earn a total of  3,610  from holding WisdomTree Japan Hedged or generate 50.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

WisdomTree Japan Hedged  vs.  iShares MSCI Japan

WisdomTree Japan Hedged

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Japan Hedged are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, WisdomTree Japan may actually be approaching a critical reversion point that can send shares even higher in June 2024.

iShares MSCI Japan

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Japan are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady fundamental indicators, IShares MSCI is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with WisdomTree Japan and IShares MSCI

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

The idea behind WisdomTree Japan Hedged and iShares 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.