Correlation Between WisdomTree Europe and WisdomTree Japan
Can any of the company-specific risk be diversified away by investing in both WisdomTree Europe 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 WisdomTree Europe and WisdomTree Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree Europe SmallCap and WisdomTree Japan SmallCap, you can compare the effects of market volatilities on WisdomTree Europe 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 WisdomTree Europe with a short position of WisdomTree Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Europe and WisdomTree Japan.
Diversification Opportunities for WisdomTree Europe and WisdomTree Japan
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between WisdomTree and WisdomTree is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Europe SmallCap 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 WisdomTree Europe 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 Europe SmallCap 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 WisdomTree Europe i.e., WisdomTree Europe and WisdomTree Japan go up and down completely randomly.
Pair Corralation between WisdomTree Europe and WisdomTree Japan
Considering the 90-day investment horizon WisdomTree Europe SmallCap is expected to generate 1.13 times more return on investment than WisdomTree Japan. However, WisdomTree Europe is 1.13 times more volatile than WisdomTree Japan SmallCap. It trades about 0.13 of its potential returns per unit of risk. WisdomTree Japan SmallCap is currently generating about 0.07 per unit of risk. If you would invest 6,246 in WisdomTree Europe SmallCap on March 15, 2025 and sell it today you would earn a total of 759.00 from holding WisdomTree Europe SmallCap or generate 12.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
WisdomTree Europe SmallCap vs. WisdomTree Japan SmallCap
Performance |
| Timeline |
| WisdomTree Europe |
| WisdomTree Japan SmallCap |
WisdomTree Europe and WisdomTree Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree Europe and WisdomTree Japan
The main advantage of trading using opposite WisdomTree Europe and WisdomTree Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Europe 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.| WisdomTree Europe vs. WisdomTree International MidCap | WisdomTree Europe vs. WisdomTree Global High | WisdomTree Europe vs. WisdomTree International SmallCap | WisdomTree Europe vs. WisdomTree Japan SmallCap |
| WisdomTree Japan vs. WisdomTree Global ex US | WisdomTree Japan vs. WisdomTree Europe SmallCap | WisdomTree Japan vs. WisdomTree International MidCap | WisdomTree Japan vs. WisdomTree Global High |
Check out your portfolio center.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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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