Correlation Between Xtrackers MSCI and WisdomTree SmallCap

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

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

Diversification Opportunities for Xtrackers MSCI and WisdomTree SmallCap

0.83

Correlation Coefficient

Xtrackers MSCI  WisdomTree SmallCap

Very poor diversification

The 3 months correlation between Xtrackers and WisdomTree is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI Japan and WisdomTree SmallCap Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap 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 Japan are associated (or correlated) with WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and WisdomTree SmallCap

Given the investment horizon of 90 days Xtrackers MSCI Japan is expected to generate 0.97 times more return on investment than WisdomTree SmallCap. However, Xtrackers MSCI Japan is 1.03 times less risky than WisdomTree SmallCap. It trades about 0.24 of its potential returns per unit of risk. WisdomTree SmallCap Earnings is currently generating about 0.08 per unit of risk. If you would invest  7,620  in Xtrackers MSCI Japan on July 9, 2025 and sell it today you would earn a total of  1,343  from holding Xtrackers MSCI Japan or generate 17.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Xtrackers MSCI Japan  vs.  WisdomTree SmallCap Earnings

Xtrackers MSCI Japan

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI Japan are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile forward-looking indicators, Xtrackers MSCI reported solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree SmallCap

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Earnings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, WisdomTree SmallCap is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Xtrackers MSCI and WisdomTree SmallCap

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

The idea behind Xtrackers MSCI Japan and WisdomTree SmallCap Earnings 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.