Correlation Between Xtrackers Nikkei and WisdomTree

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

By analyzing existing cross correlation between Xtrackers Nikkei 225 and WisdomTree SP 500, you can compare the effects of market volatilities on Xtrackers Nikkei and WisdomTree 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 Xtrackers Nikkei with a short position of WisdomTree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers Nikkei and WisdomTree.

Diversification Opportunities for Xtrackers Nikkei and WisdomTree

0.42

Correlation Coefficient

Xtrackers Nikkei  WisdomTree

Very weak diversification

The 3 months correlation between Xtrackers and WisdomTree is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Nikkei 225 and WisdomTree SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SP 500 and Xtrackers Nikkei 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 Xtrackers Nikkei 225 are associated (or correlated) with WisdomTree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SP 500 has no effect on the direction of Xtrackers Nikkei i.e., Xtrackers Nikkei and WisdomTree go up and down completely randomly.

Pair Corralation between Xtrackers Nikkei and WisdomTree

Assuming the 90 days trading horizon Xtrackers Nikkei 225 is expected to under-perform the WisdomTree. But the etf apears to be less risky and, when comparing its historical volatility, Xtrackers Nikkei 225 is 2.31 times less risky than WisdomTree. The etf trades about -0.02 of its potential returns per unit of risk. The WisdomTree SP 500 is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,843  in WisdomTree SP 500 on September 26, 2024 and sell it today you would earn a total of  898.00  from holding WisdomTree SP 500 or generate 9.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Xtrackers Nikkei 225  vs.  WisdomTree SP 500

Xtrackers Nikkei 225

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Xtrackers Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, Xtrackers Nikkei is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

WisdomTree SP 500

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SP 500 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WisdomTree may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Xtrackers Nikkei and WisdomTree

The main advantage of trading using opposite Xtrackers Nikkei and WisdomTree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers Nikkei position performs unexpectedly, WisdomTree 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 will offset losses from the drop in WisdomTree's long position.

The idea behind Xtrackers Nikkei 225 and WisdomTree SP 500 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.