Correlation Between IShares Core and WisdomTree Europe

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

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

Diversification Opportunities for IShares Core and WisdomTree Europe

0.98

Correlation Coefficient

IShares Core  WisdomTree Europe

Almost no diversification

The 3 months correlation between IShares and WisdomTree is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and WisdomTree Europe SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe and IShares Core 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 Core MSCI 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 has no effect on the direction of IShares Core i.e., IShares Core and WisdomTree Europe go up and down completely randomly.

Pair Corralation between IShares Core and WisdomTree Europe

Given the investment horizon of 90 days iShares Core MSCI is expected to generate 0.85 times more return on investment than WisdomTree Europe. However, iShares Core MSCI is 1.17 times less risky than WisdomTree Europe. It trades about -0.15 of its potential returns per unit of risk. WisdomTree Europe SmallCap is currently generating about -0.14 per unit of risk. If you would invest  6,053  in iShares Core MSCI on August 30, 2024 and sell it today you would lose (483.00) from holding iShares Core MSCI or give up 7.98% of portfolio value over 90 days.

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

iShares Core MSCI  vs.  WisdomTree Europe SmallCap

iShares Core MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

WisdomTree Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Europe SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with IShares Core and WisdomTree Europe

The main advantage of trading using opposite IShares Core and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 iShares Core MSCI and WisdomTree Europe 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.