Correlation Between IShares ESG and SPDR MSCI

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

By analyzing existing cross correlation between iShares ESG Aware and SPDR MSCI EAFE, you can compare the effects of market volatilities on IShares ESG and SPDR MSCI 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 SPDR MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and SPDR MSCI.

Diversification Opportunities for IShares ESG and SPDR MSCI

1.0

Correlation Coefficient

IShares ESG  SPDR MSCI

No risk reduction

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

Pair Corralation between IShares ESG and SPDR MSCI

Given the investment horizon of 90 days iShares ESG Aware is expected to under-perform the SPDR MSCI. In addition to that, IShares ESG is 1.02 times more volatile than SPDR MSCI EAFE. It trades about -0.05 of its total potential returns per unit of risk. SPDR MSCI EAFE is currently generating about -0.05 per unit of volatility. If you would invest  4,265  in SPDR MSCI EAFE on September 12, 2024 and sell it today you would lose (110.00) from holding SPDR MSCI EAFE or give up 2.58% 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 Aware  vs.  SPDR MSCI EAFE

iShares ESG Aware

Risk-Adjusted Performance

0 of 100

Very Weak

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

SPDR MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SPDR MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares ESG and SPDR MSCI

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

The idea behind iShares ESG Aware and SPDR MSCI EAFE 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.