Correlation Between IShares ESG and Vanguard Total

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

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

Diversification Opportunities for IShares ESG and Vanguard Total

0.71

Correlation Coefficient

IShares ESG  Vanguard Total

Poor diversification

The 3 months correlation between IShares and Vanguard is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG MSCI and Vanguard Total Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Stock 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 MSCI are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Stock has no effect on the direction of IShares ESG i.e., IShares ESG and Vanguard Total go up and down completely randomly.

Pair Corralation between IShares ESG and Vanguard Total

Given the investment horizon of 90 days iShares ESG MSCI is expected to under-perform the Vanguard Total. But the etf apears to be less risky and, when comparing its historical volatility, iShares ESG MSCI is 1.25 times less risky than Vanguard Total. The etf trades about -0.04 of its potential returns per unit of risk. The Vanguard Total Stock is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  28,129  in Vanguard Total Stock on September 22, 2024 and sell it today you would earn a total of  1,199  from holding Vanguard Total Stock or generate 4.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

iShares ESG MSCI  vs.  Vanguard Total Stock

iShares ESG MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares ESG MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable primary indicators, IShares ESG is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Vanguard Total Stock

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares ESG and Vanguard Total

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

The idea behind iShares ESG MSCI and Vanguard Total Stock 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.