Correlation Between WisdomTree EURO and PowerShares EURO

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

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

Diversification Opportunities for WisdomTree EURO and PowerShares EURO

0.94

Correlation Coefficient

WisdomTree EURO  PowerShares EURO

Almost no diversification

The 3 months correlation between WisdomTree and PowerShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree EURO STOXX and PowerShares EURO STOXX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PowerShares EURO STOXX and WisdomTree EURO 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 EURO STOXX are associated (or correlated) with PowerShares EURO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PowerShares EURO STOXX has no effect on the direction of WisdomTree EURO i.e., WisdomTree EURO and PowerShares EURO go up and down completely randomly.

Pair Corralation between WisdomTree EURO and PowerShares EURO

Assuming the 90 days trading horizon WisdomTree EURO STOXX is expected to generate 6.6 times more return on investment than PowerShares EURO. However, WisdomTree EURO is 6.6 times more volatile than PowerShares EURO STOXX. It trades about 0.2 of its potential returns per unit of risk. PowerShares EURO STOXX is currently generating about 0.3 per unit of risk. If you would invest  170,650  in WisdomTree EURO STOXX on April 22, 2025 and sell it today you would earn a total of  93,600  from holding WisdomTree EURO STOXX or generate 54.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

WisdomTree EURO STOXX  vs.  PowerShares EURO STOXX

WisdomTree EURO STOXX

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree EURO STOXX are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree EURO unveiled solid returns over the last few months and may actually be approaching a breakup point.

PowerShares EURO STOXX

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PowerShares EURO STOXX are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, PowerShares EURO may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with WisdomTree EURO and PowerShares EURO

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

The idea behind WisdomTree EURO STOXX and PowerShares EURO STOXX 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.