Correlation Between SPDR SP and WisdomTree Europe

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

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

Diversification Opportunities for SPDR SP and WisdomTree Europe

0.87

Correlation Coefficient

SPDR SP  WisdomTree Europe

Very poor diversification

The 3 months correlation between SPDR and WisdomTree is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Emerging and WisdomTree Europe SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe and SPDR SP 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 SPDR SP Emerging 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 SPDR SP i.e., SPDR SP and WisdomTree Europe go up and down completely randomly.

Pair Corralation between SPDR SP and WisdomTree Europe

Considering the 90-day investment horizon SPDR SP Emerging is expected to generate 1.04 times more return on investment than WisdomTree Europe. However, SPDR SP is 1.04 times more volatile than WisdomTree Europe SmallCap. It trades about 0.17 of its potential returns per unit of risk. WisdomTree Europe SmallCap is currently generating about 0.14 per unit of risk. If you would invest  5,990  in SPDR SP Emerging on May 17, 2025 and sell it today you would earn a total of  456.00  from holding SPDR SP Emerging or generate 7.61% return on investment over 90 days.

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

SPDR SP Emerging  vs.  WisdomTree Europe SmallCap

SPDR SP Emerging

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Emerging are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in September 2025.

WisdomTree Europe

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe SmallCap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, WisdomTree Europe is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SPDR SP and WisdomTree Europe

The main advantage of trading using opposite SPDR SP and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP Emerging 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.