Correlation Between IShares and WisdomTree Japan

Can any of the company-specific risk be diversified away by investing in both IShares 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 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 and WisdomTree Japan SmallCap, you can compare the effects of market volatilities on IShares 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 with a short position of WisdomTree Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares and WisdomTree Japan.

Diversification Opportunities for IShares and WisdomTree Japan

0.02

Correlation Coefficient

IShares  WisdomTree Japan

Significant diversification

The 3 months correlation between IShares and WisdomTree is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding IShares 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 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 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 i.e., IShares and WisdomTree Japan go up and down completely randomly.

Pair Corralation between IShares and WisdomTree Japan

If you would invest  7,904  in WisdomTree Japan SmallCap on September 5, 2024 and sell it today you would earn a total of  3.00  from holding WisdomTree Japan SmallCap or generate 0.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

IShares  vs.  WisdomTree Japan SmallCap

IShares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IShares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, IShares is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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 and WisdomTree Japan

The main advantage of trading using opposite IShares and WisdomTree Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 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 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.