Correlation Between First Trust and WisdomTree Japan
Can any of the company-specific risk be diversified away by investing in both First Trust 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 First Trust and WisdomTree Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Japan and WisdomTree Japan SmallCap, you can compare the effects of market volatilities on First Trust 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 First Trust with a short position of WisdomTree Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and WisdomTree Japan.
Diversification Opportunities for First Trust and WisdomTree Japan
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and WisdomTree is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Japan 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 First Trust 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 First Trust Japan 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 First Trust i.e., First Trust and WisdomTree Japan go up and down completely randomly.
Pair Corralation between First Trust and WisdomTree Japan
Considering the 90-day investment horizon First Trust is expected to generate 1.16 times less return on investment than WisdomTree Japan. In addition to that, First Trust is 1.27 times more volatile than WisdomTree Japan SmallCap. It trades about 0.04 of its total potential returns per unit of risk. WisdomTree Japan SmallCap is currently generating about 0.06 per unit of volatility. If you would invest 5,871 in WisdomTree Japan SmallCap on January 26, 2024 and sell it today you would earn a total of 1,610 from holding WisdomTree Japan SmallCap or generate 27.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Japan vs. WisdomTree Japan SmallCap
Performance |
| Timeline |
| First Trust Japan |
| WisdomTree Japan SmallCap |
First Trust and WisdomTree Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and WisdomTree Japan
The main advantage of trading using opposite First Trust and WisdomTree Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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.| First Trust vs. WisdomTree Europe Hedged | First Trust vs. WisdomTree Europe SmallCap | First Trust vs. iShares MSCI Germany |
| WisdomTree Japan vs. WisdomTree Europe Hedged | WisdomTree Japan vs. WisdomTree Europe SmallCap | WisdomTree Japan vs. iShares MSCI Germany |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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