Correlation Between IShares ESG and BlackRock World

Can any of the company-specific risk be diversified away by investing in both IShares ESG and BlackRock World 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 BlackRock World 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 BlackRock World ex, you can compare the effects of market volatilities on IShares ESG and BlackRock World 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 BlackRock World. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and BlackRock World.

Diversification Opportunities for IShares ESG and BlackRock World

0.73

Correlation Coefficient

IShares ESG  BlackRock World

Poor diversification

The 3 months correlation between IShares and BlackRock is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aggregate and BlackRock World ex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlackRock World ex 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 BlackRock World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlackRock World ex has no effect on the direction of IShares ESG i.e., IShares ESG and BlackRock World go up and down completely randomly.

Pair Corralation between IShares ESG and BlackRock World

Given the investment horizon of 90 days iShares ESG Aggregate is expected to generate 0.4 times more return on investment than BlackRock World. However, iShares ESG Aggregate is 2.52 times less risky than BlackRock World. It trades about -0.03 of its potential returns per unit of risk. BlackRock World ex is currently generating about -0.05 per unit of risk. If you would invest  4,784  in iShares ESG Aggregate on September 2, 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	Significant
Accuracy	100.0%
Values	Daily Returns

iShares ESG Aggregate  vs.  BlackRock World ex

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

BlackRock World ex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BlackRock World ex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, BlackRock World is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares ESG and BlackRock World

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

The idea behind iShares ESG Aggregate and BlackRock World ex 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.