Correlation Between MicroSectors FANG and WisdomTree Europe

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

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

Diversification Opportunities for MicroSectors FANG and WisdomTree Europe

-0.42

Correlation Coefficient

MicroSectors FANG  WisdomTree Europe

Very good diversification

The 3 months correlation between MicroSectors and WisdomTree is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and WisdomTree Europe Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe Hedged and MicroSectors FANG 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 MicroSectors FANG Index 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 Hedged has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and WisdomTree Europe go up and down completely randomly.

Pair Corralation between MicroSectors FANG and WisdomTree Europe

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the WisdomTree Europe. In addition to that, MicroSectors FANG is 4.3 times more volatile than WisdomTree Europe Hedged. It trades about -0.29 of its total potential returns per unit of risk. WisdomTree Europe Hedged is currently generating about 0.25 per unit of volatility. If you would invest  4,250  in WisdomTree Europe Hedged on February 5, 2025 and sell it today you would earn a total of  573.00  from holding WisdomTree Europe Hedged or generate 13.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

MicroSectors FANG Index  vs.  WisdomTree Europe Hedged

MicroSectors FANG Index

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, MicroSectors FANG exhibited solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree Europe Hedged

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe Hedged are ranked lower than 2 (%) 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 new stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with MicroSectors FANG and WisdomTree Europe

The main advantage of trading using opposite MicroSectors FANG and WisdomTree Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG 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 MicroSectors FANG Index and WisdomTree Europe Hedged 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.