Correlation Between IShares MSCI and WisdomTree Japan

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

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

Diversification Opportunities for IShares MSCI and WisdomTree Japan

-0.56

Correlation Coefficient

IShares MSCI  WisdomTree Japan

Excellent diversification

The 3 months correlation between IShares and WisdomTree is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Israel 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 IShares MSCI 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 iShares MSCI Israel 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 IShares MSCI i.e., IShares MSCI and WisdomTree Japan go up and down completely randomly.

Pair Corralation between IShares MSCI and WisdomTree Japan

Considering the 90-day investment horizon iShares MSCI Israel is expected to generate 1.15 times more return on investment than WisdomTree Japan. However, IShares MSCI is 1.15 times more volatile than WisdomTree Japan SmallCap. It trades about 0.23 of its potential returns per unit of risk. WisdomTree Japan SmallCap is currently generating about 0.01 per unit of risk. If you would invest  6,481  in iShares MSCI Israel on September 5, 2024 and sell it today you would earn a total of  1,088  from holding iShares MSCI Israel or generate 16.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

iShares MSCI Israel  vs.  WisdomTree Japan SmallCap

iShares MSCI Israel

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Israel are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady forward indicators, IShares MSCI unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with IShares MSCI and WisdomTree Japan

The main advantage of trading using opposite IShares MSCI and WisdomTree Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI 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.

The idea behind iShares MSCI Israel and WisdomTree Japan SmallCap 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.