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 Exchange Traded and WisdomTree Europe SmallCap, 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

0.94

Correlation Coefficient

First Trust  WisdomTree Europe

Almost no diversification

The 3 months correlation between First and WisdomTree is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and WisdomTree Europe SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe 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 Exchange Traded 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 First Trust i.e., First Trust and WisdomTree Europe go up and down completely randomly.

Pair Corralation between First Trust and WisdomTree Europe

Given the investment horizon of 90 days First Trust is expected to generate 1.55 times less return on investment than WisdomTree Europe. But when comparing it to its historical volatility, First Trust Exchange Traded is 1.05 times less risky than WisdomTree Europe. It trades about 0.22 of its potential returns per unit of risk. WisdomTree Europe SmallCap is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  6,251  in WisdomTree Europe SmallCap on April 25, 2025 and sell it today you would earn a total of  916.00  from holding WisdomTree Europe SmallCap or generate 14.65% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  WisdomTree Europe SmallCap

First Trust Exchange

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in August 2025.

WisdomTree Europe

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe SmallCap are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, WisdomTree Europe exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 Exchange Traded 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.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.