Correlation Between TCW Transform and WisdomTree Europe

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

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

Diversification Opportunities for TCW Transform and WisdomTree Europe

0.96

Correlation Coefficient

TCW Transform  WisdomTree Europe

Almost no diversification

The 3 months correlation between TCW and WisdomTree is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding TCW Transform Supply and WisdomTree Europe SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe and TCW Transform 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 TCW Transform Supply 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 TCW Transform i.e., TCW Transform and WisdomTree Europe go up and down completely randomly.

Pair Corralation between TCW Transform and WisdomTree Europe

Given the investment horizon of 90 days TCW Transform Supply is expected to generate 1.15 times more return on investment than WisdomTree Europe. However, TCW Transform is 1.15 times more volatile than WisdomTree Europe SmallCap. It trades about 0.34 of its potential returns per unit of risk. WisdomTree Europe SmallCap is currently generating about 0.21 per unit of risk. If you would invest  5,989  in TCW Transform Supply on May 1, 2025 and sell it today you would earn a total of  1,105  from holding TCW Transform Supply or generate 18.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

TCW Transform Supply  vs.  WisdomTree Europe SmallCap

TCW Transform Supply

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in TCW Transform Supply are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, TCW Transform reported solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe SmallCap are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with TCW Transform and WisdomTree Europe

The main advantage of trading using opposite TCW Transform and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TCW Transform 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 TCW Transform Supply 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.