Correlation Between WisdomTree Europe and First Trust

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

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

Diversification Opportunities for WisdomTree Europe and First Trust

0.36

Correlation Coefficient

WisdomTree Europe  First Trust

Weak diversification

The 3 months correlation between WisdomTree and First is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Europe Hedged and First Trust RiverFront in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RiverFront and WisdomTree Europe 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 Europe Hedged are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust RiverFront has no effect on the direction of WisdomTree Europe i.e., WisdomTree Europe and First Trust go up and down completely randomly.

Pair Corralation between WisdomTree Europe and First Trust

Given the investment horizon of 90 days WisdomTree Europe is expected to generate 1.93 times less return on investment than First Trust. In addition to that, WisdomTree Europe is 1.26 times more volatile than First Trust RiverFront. It trades about 0.04 of its total potential returns per unit of risk. First Trust RiverFront is currently generating about 0.1 per unit of volatility. If you would invest  6,572  in First Trust RiverFront on May 12, 2025 and sell it today you would earn a total of  297.00  from holding First Trust RiverFront or generate 4.52% return on investment over 90 days.

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

WisdomTree Europe Hedged  vs.  First Trust RiverFront

WisdomTree Europe Hedged

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Hedged are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady fundamental indicators, WisdomTree Europe is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

First Trust RiverFront

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust RiverFront are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with WisdomTree Europe and First Trust

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

The idea behind WisdomTree Europe Hedged and First Trust RiverFront 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.