Correlation Between IShares ESG and IShares GovernmentCredit

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

By analyzing existing cross correlation between iShares ESG Aggregate and iShares GovernmentCredit Bond, you can compare the effects of market volatilities on IShares ESG and IShares GovernmentCredit 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 IShares ESG with a short position of IShares GovernmentCredit. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and IShares GovernmentCredit.

Diversification Opportunities for IShares ESG and IShares GovernmentCredit

1.0

Correlation Coefficient

IShares ESG  IShares GovernmentCredit

No risk reduction

The 3 months correlation between IShares and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aggregate and iShares GovernmentCredit Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IShares GovernmentCredit and IShares ESG 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 iShares ESG Aggregate are associated (or correlated) with IShares GovernmentCredit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IShares GovernmentCredit has no effect on the direction of IShares ESG i.e., IShares ESG and IShares GovernmentCredit go up and down completely randomly.

Pair Corralation between IShares ESG and IShares GovernmentCredit

Given the investment horizon of 90 days iShares ESG Aggregate is expected to generate 0.99 times more return on investment than IShares GovernmentCredit. However, iShares ESG Aggregate is 1.01 times less risky than IShares GovernmentCredit. It trades about -0.03 of its potential returns per unit of risk. iShares GovernmentCredit Bond is currently generating about -0.04 per unit of risk. If you would invest  4,784  in iShares ESG Aggregate on September 3, 2024 and sell it today you would lose (28.00) from holding iShares ESG Aggregate or give up 0.59% of portfolio value over 90 days.

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

iShares ESG Aggregate  vs.  iShares GovernmentCredit Bond

iShares ESG Aggregate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares ESG Aggregate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IShares ESG is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

IShares GovernmentCredit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares GovernmentCredit Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, IShares GovernmentCredit is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares ESG and IShares GovernmentCredit

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

The idea behind iShares ESG Aggregate and iShares GovernmentCredit Bond 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.