Correlation Between IShares ESG and Davis Select

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

Diversification Opportunities for IShares ESG and Davis Select

0.95

Correlation Coefficient

IShares ESG  Davis Select

Almost no diversification

The 3 months correlation between IShares and Davis is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and Davis Select Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Equity 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 Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Equity has no effect on the direction of IShares ESG i.e., IShares ESG and Davis Select go up and down completely randomly.

Pair Corralation between IShares ESG and Davis Select

Given the investment horizon of 90 days IShares ESG is expected to generate 1.07 times less return on investment than Davis Select. But when comparing it to its historical volatility, iShares ESG Aware is 1.43 times less risky than Davis Select. It trades about 0.22 of its potential returns per unit of risk. Davis Select Equity is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,065  in Davis Select Equity on September 4, 2024 and sell it today you would earn a total of  442.00  from holding Davis Select Equity or generate 10.87% return on investment over 90 days.

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

iShares ESG Aware  vs.  Davis Select Equity

iShares ESG Aware

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Davis Select Equity

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select Equity are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Davis Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares ESG and Davis Select

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

The idea behind iShares ESG Aware and Davis Select Equity 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.