Correlation Between WisdomTree Emerging and ETF Series

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

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

Diversification Opportunities for WisdomTree Emerging and ETF Series

0.88

Correlation Coefficient

WisdomTree Emerging  ETF Series

Very poor diversification

The 3 months correlation between WisdomTree and ETF is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Emerging Markets and ETF Series Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETF Series Solutions and WisdomTree Emerging 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 WisdomTree Emerging Markets are associated (or correlated) with ETF Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETF Series Solutions has no effect on the direction of WisdomTree Emerging i.e., WisdomTree Emerging and ETF Series go up and down completely randomly.

Pair Corralation between WisdomTree Emerging and ETF Series

Allowing for the 90-day total investment horizon WisdomTree Emerging is expected to generate 1.7 times less return on investment than ETF Series. But when comparing it to its historical volatility, WisdomTree Emerging Markets is 1.36 times less risky than ETF Series. It trades about 0.06 of its potential returns per unit of risk. ETF Series Solutions is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,440  in ETF Series Solutions on January 30, 2024 and sell it today you would earn a total of  1,100  from holding ETF Series Solutions or generate 45.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.51%
Values	Daily Returns

WisdomTree Emerging Markets  vs.  ETF Series Solutions

WisdomTree Emerging

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Emerging Markets are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, WisdomTree Emerging is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

ETF Series Solutions

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ETF Series Solutions are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, ETF Series is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with WisdomTree Emerging and ETF Series

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

The idea behind WisdomTree Emerging Markets and ETF Series Solutions 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.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..