Correlation Between IShares International and WisdomTree Emerging

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

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

Diversification Opportunities for IShares International and WisdomTree Emerging

0.7

Correlation Coefficient

IShares International  WisdomTree Emerging

Poor diversification

The 3 months correlation between IShares and WisdomTree is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares International Select and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging and IShares International 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 International Select are associated (or correlated) with WisdomTree Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of IShares International i.e., IShares International and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between IShares International and WisdomTree Emerging

Considering the 90-day investment horizon IShares International is expected to generate 2.29 times less return on investment than WisdomTree Emerging. In addition to that, IShares International is 1.1 times more volatile than WisdomTree Emerging Markets. It trades about 0.02 of its total potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about 0.05 per unit of volatility. If you would invest  3,425  in WisdomTree Emerging Markets on February 3, 2024 and sell it today you would earn a total of  836.00  from holding WisdomTree Emerging Markets or generate 24.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

iShares International Select  vs.  WisdomTree Emerging Markets

iShares International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares International Select are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, IShares International is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

WisdomTree Emerging

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Emerging Markets are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, WisdomTree Emerging may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with IShares International and WisdomTree Emerging

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

The idea behind iShares International Select and WisdomTree Emerging Markets 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 Transaction History module to view history of all your transactions and understand their impact on performance.