Correlation Between First Trust and WisdomTree Europe

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

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

Diversification Opportunities for First Trust and WisdomTree Europe

0.2

Correlation Coefficient

First Trust  WisdomTree Europe

Modest diversification

The 3 months correlation between First and WisdomTree is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Europe and WisdomTree Europe Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe Quality and First Trust 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 First Trust Europe 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 Quality has no effect on the direction of First Trust i.e., First Trust and WisdomTree Europe go up and down completely randomly.

Pair Corralation between First Trust and WisdomTree Europe

Considering the 90-day investment horizon First Trust Europe is expected to generate 1.11 times more return on investment than WisdomTree Europe. However, First Trust is 1.11 times more volatile than WisdomTree Europe Quality. It trades about 0.24 of its potential returns per unit of risk. WisdomTree Europe Quality is currently generating about 0.03 per unit of risk. If you would invest  4,370  in First Trust Europe on May 14, 2025 and sell it today you would earn a total of  585.00  from holding First Trust Europe or generate 13.39% return on investment over 90 days.

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

First Trust Europe  vs.  WisdomTree Europe Quality

First Trust Europe

Risk-Adjusted Performance

Solid

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

WisdomTree Europe Quality

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Quality are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, WisdomTree Europe is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and WisdomTree Europe

The main advantage of trading using opposite First Trust and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Europe and WisdomTree Europe Quality 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.

Check out your portfolio center.

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.