Correlation Between ProShares Russell and WisdomTree Europe

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

By analyzing existing cross correlation between ProShares Russell 2000 and WisdomTree Europe Hedged, you can compare the effects of market volatilities on ProShares Russell 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 ProShares Russell with a short position of WisdomTree Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Russell and WisdomTree Europe.

Diversification Opportunities for ProShares Russell and WisdomTree Europe

0.65

Correlation Coefficient

ProShares Russell  WisdomTree Europe

Poor diversification

The 3 months correlation between ProShares and WisdomTree is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Russell 2000 and WisdomTree Europe Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe Hedged and ProShares Russell 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 ProShares Russell 2000 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 Hedged has no effect on the direction of ProShares Russell i.e., ProShares Russell and WisdomTree Europe go up and down completely randomly.

Pair Corralation between ProShares Russell and WisdomTree Europe

Given the investment horizon of 90 days ProShares Russell is expected to generate 5.49 times less return on investment than WisdomTree Europe. In addition to that, ProShares Russell is 1.78 times more volatile than WisdomTree Europe Hedged. It trades about 0.02 of its total potential returns per unit of risk. WisdomTree Europe Hedged is currently generating about 0.19 per unit of volatility. If you would invest  3,703  in WisdomTree Europe Hedged on March 14, 2024 and sell it today you would earn a total of  271.00  from holding WisdomTree Europe Hedged or generate 7.32% return on investment over 90 days.

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

ProShares Russell 2000  vs.  WisdomTree Europe Hedged

ProShares Russell 2000

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Russell 2000 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, ProShares Russell is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

WisdomTree Europe Hedged

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Hedged are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with ProShares Russell and WisdomTree Europe

The main advantage of trading using opposite ProShares Russell and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares Russell 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 ProShares Russell 2000 and WisdomTree Europe Hedged 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.