Correlation Between WisdomTree Japan and Xtrackers MSCI

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

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

Diversification Opportunities for WisdomTree Japan and Xtrackers MSCI

0.38

Correlation Coefficient

WisdomTree Japan  Xtrackers MSCI

Weak diversification

The 3 months correlation between WisdomTree and Xtrackers is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Japan Hedged and Xtrackers MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI Europe 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 Hedged are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI Europe has no effect on the direction of WisdomTree Japan i.e., WisdomTree Japan and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between WisdomTree Japan and Xtrackers MSCI

Given the investment horizon of 90 days WisdomTree Japan Hedged is expected to generate 1.31 times more return on investment than Xtrackers MSCI. However, WisdomTree Japan is 1.31 times more volatile than Xtrackers MSCI Europe. It trades about 0.1 of its potential returns per unit of risk. Xtrackers MSCI Europe is currently generating about 0.06 per unit of risk. If you would invest  3,580  in WisdomTree Japan Hedged on May 15, 2025 and sell it today you would earn a total of  108.00  from holding WisdomTree Japan Hedged or generate 3.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	56.45%
Values	Daily Returns

WisdomTree Japan Hedged  vs.  Xtrackers MSCI Europe

WisdomTree Japan Hedged

Risk-Adjusted Performance

Fair

Over the last 90 days WisdomTree Japan Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking indicators, WisdomTree Japan is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Xtrackers MSCI Europe

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI Europe are ranked lower than 4 (%) 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.

Pair Trading with WisdomTree Japan and Xtrackers MSCI

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

The idea behind WisdomTree Japan Hedged and Xtrackers MSCI Europe 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.