Correlation Between IShares ESG and WisdomTree Emerging

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

Diversification Opportunities for IShares ESG and WisdomTree Emerging

1.0

Correlation Coefficient

IShares ESG  WisdomTree Emerging

No risk reduction

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

Pair Corralation between IShares ESG and WisdomTree Emerging

Given the investment horizon of 90 days iShares ESG Aware is expected to generate 1.03 times more return on investment than WisdomTree Emerging. However, IShares ESG is 1.03 times more volatile than WisdomTree Emerging Markets. It trades about -0.01 of its potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about -0.04 per unit of risk. If you would invest  3,404  in iShares ESG Aware on September 25, 2024 and sell it today you would lose (6.00) from holding iShares ESG Aware or give up 0.18% 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.  WisdomTree Emerging Markets

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

WisdomTree Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares ESG and WisdomTree Emerging

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

The idea behind iShares ESG Aware and WisdomTree Emerging Markets 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.