Correlation Between WisdomTree Japan and WisdomTree Global

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

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

Diversification Opportunities for WisdomTree Japan and WisdomTree Global

0.9

Correlation Coefficient

WisdomTree Japan  WisdomTree Global

Almost no diversification

The 3 months correlation between WisdomTree and WisdomTree is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan SmallCap and WisdomTree Global ex US in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Global and WisdomTree Japan 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 Japan SmallCap are associated (or correlated) with WisdomTree Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Global has no effect on the direction of WisdomTree Japan i.e., WisdomTree Japan and WisdomTree Global go up and down completely randomly.

Pair Corralation between WisdomTree Japan and WisdomTree Global

Considering the 90-day investment horizon WisdomTree Japan is expected to generate 1.48 times less return on investment than WisdomTree Global. But when comparing it to its historical volatility, WisdomTree Japan SmallCap is 1.04 times less risky than WisdomTree Global. It trades about 0.12 of its potential returns per unit of risk. WisdomTree Global ex US is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,642  in WisdomTree Global ex US on April 30, 2025 and sell it today you would earn a total of  342.00  from holding WisdomTree Global ex US or generate 9.39% return on investment over 90 days.

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

WisdomTree Japan SmallCap  vs.  WisdomTree Global ex US

WisdomTree Japan SmallCap

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Japan SmallCap are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting technical and fundamental indicators, WisdomTree Japan may actually be approaching a critical reversion point that can send shares even higher in August 2025.

WisdomTree Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Global ex US are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, WisdomTree Global may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with WisdomTree Japan and WisdomTree Global

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

The idea behind WisdomTree Japan SmallCap and WisdomTree Global ex US 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.