Correlation Between IShares ESG and IShares MSCI

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

Diversification Opportunities for IShares ESG and IShares MSCI

-0.57

Correlation Coefficient

IShares ESG  IShares MSCI

Excellent diversification

The 3 months correlation between IShares and IShares is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA 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 IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI USA has no effect on the direction of IShares ESG i.e., IShares ESG and IShares MSCI go up and down completely randomly.

Pair Corralation between IShares ESG and IShares MSCI

Given the investment horizon of 90 days IShares ESG is expected to generate 2.3 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, iShares ESG Aware is 1.15 times less risky than IShares MSCI. It trades about 0.04 of its potential returns per unit of risk. iShares MSCI USA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,877  in iShares MSCI USA on September 19, 2024 and sell it today you would earn a total of  2,191  from holding iShares MSCI USA or generate 44.93% return on investment over 90 days.

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

iShares ESG Aware  vs.  iShares MSCI USA

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares MSCI USA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares ESG and IShares MSCI

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

The idea behind iShares ESG Aware and iShares MSCI USA 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.