Correlation Between WisdomTree Japan and WisdomTree Emerging

Can any of the company-specific risk be diversified away by investing in both WisdomTree Japan and WisdomTree Emerging 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 Emerging 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 WisdomTree Emerging Markets, you can compare the effects of market volatilities on WisdomTree Japan and WisdomTree Emerging 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 Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Japan and WisdomTree Emerging.

Diversification Opportunities for WisdomTree Japan and WisdomTree Emerging

0.83

Correlation Coefficient

WisdomTree Japan  WisdomTree Emerging

Very poor diversification

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

Pair Corralation between WisdomTree Japan and WisdomTree Emerging

Given the investment horizon of 90 days WisdomTree Japan is expected to generate 1.51 times less return on investment than WisdomTree Emerging. In addition to that, WisdomTree Japan is 1.07 times more volatile than WisdomTree Emerging Markets. It trades about 0.14 of its total potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about 0.23 per unit of volatility. If you would invest  2,474  in WisdomTree Emerging Markets on April 27, 2025 and sell it today you would earn a total of  296.00  from holding WisdomTree Emerging Markets or generate 11.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	76.19%
Values	Daily Returns

WisdomTree Japan Hedged  vs.  WisdomTree Emerging Markets

WisdomTree Japan Hedged

Risk-Adjusted Performance

OK

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 unsteady forward-looking indicators, WisdomTree Japan may actually be approaching a critical reversion point that can send shares even higher in August 2025.

WisdomTree Emerging

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Emerging Markets are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, WisdomTree Emerging may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with WisdomTree Japan and WisdomTree Emerging

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

The idea behind WisdomTree Japan Hedged and WisdomTree Emerging Markets 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.