Correlation Between WisdomTree Aluminium and PowerShares EURO

Can any of the company-specific risk be diversified away by investing in both WisdomTree Aluminium 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 Aluminium 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 Aluminium 2x and PowerShares EURO STOXX, you can compare the effects of market volatilities on WisdomTree Aluminium 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 Aluminium with a short position of PowerShares EURO. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Aluminium and PowerShares EURO.

Diversification Opportunities for WisdomTree Aluminium and PowerShares EURO

0.84

Correlation Coefficient

WisdomTree Aluminium  PowerShares EURO

Very poor diversification

The 3 months correlation between WisdomTree and PowerShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Aluminium 2x 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 Aluminium 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 Aluminium 2x 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 Aluminium i.e., WisdomTree Aluminium and PowerShares EURO go up and down completely randomly.

Pair Corralation between WisdomTree Aluminium and PowerShares EURO

Assuming the 90 days trading horizon WisdomTree Aluminium 2x is expected to generate 3.35 times more return on investment than PowerShares EURO. However, WisdomTree Aluminium is 3.35 times more volatile than PowerShares EURO STOXX. It trades about 0.17 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  176.00  in WisdomTree Aluminium 2x on April 21, 2025 and sell it today you would earn a total of  38.00  from holding WisdomTree Aluminium 2x or generate 21.59% return on investment over 90 days.

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

WisdomTree Aluminium 2x  vs.  PowerShares EURO STOXX

WisdomTree Aluminium

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Aluminium 2x are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree Aluminium 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 Aluminium and PowerShares EURO

The main advantage of trading using opposite WisdomTree Aluminium and PowerShares EURO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Aluminium 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 Aluminium 2x 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.