Correlation Between Xtrackers MSCI and WisdomTree Europe

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

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

Diversification Opportunities for Xtrackers MSCI and WisdomTree Europe

0.66

Correlation Coefficient

Xtrackers MSCI  WisdomTree Europe

Poor diversification

The 3 months correlation between Xtrackers and WisdomTree is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI Europe and WisdomTree Europe SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe and Xtrackers MSCI 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 MSCI Europe 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 Xtrackers MSCI i.e., Xtrackers MSCI and WisdomTree Europe go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and WisdomTree Europe

Given the investment horizon of 90 days Xtrackers MSCI Europe is expected to generate 1.12 times more return on investment than WisdomTree Europe. However, Xtrackers MSCI is 1.12 times more volatile than WisdomTree Europe SmallCap. It trades about 0.01 of its potential returns per unit of risk. WisdomTree Europe SmallCap is currently generating about -0.01 per unit of risk. If you would invest  4,474  in Xtrackers MSCI Europe on May 14, 2025 and sell it today you would earn a total of  1.00  from holding Xtrackers MSCI Europe or generate 0.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Xtrackers MSCI Europe  vs.  WisdomTree Europe SmallCap

Xtrackers MSCI Europe

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI Europe are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Xtrackers MSCI is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree Europe

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe SmallCap are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Xtrackers MSCI and WisdomTree Europe

The main advantage of trading using opposite Xtrackers MSCI and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers MSCI 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 Xtrackers MSCI Europe 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.