Correlation Between International Business and IShares ESG

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

By analyzing existing cross correlation between International Business Machines and iShares ESG Advanced, you can compare the effects of market volatilities on International Business and IShares ESG 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 International Business with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Business and IShares ESG.

Diversification Opportunities for International Business and IShares ESG

0.37

Correlation Coefficient

International Business  IShares ESG

Weak diversification

The 3 months correlation between International and IShares is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and iShares ESG Advanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Advanced and International Business 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 International Business Machines are associated (or correlated) with IShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG Advanced has no effect on the direction of International Business i.e., International Business and IShares ESG go up and down completely randomly.

Pair Corralation between International Business and IShares ESG

Considering the 90-day investment horizon International Business Machines is expected to generate 1.29 times more return on investment than IShares ESG. However, International Business is 1.29 times more volatile than iShares ESG Advanced. It trades about 0.11 of its potential returns per unit of risk. iShares ESG Advanced is currently generating about 0.06 per unit of risk. If you would invest  20,996  in International Business Machines on September 12, 2024 and sell it today you would earn a total of  2,176  from holding International Business Machines or generate 10.36% return on investment over 90 days.

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

International Business Machine  vs.  iShares ESG Advanced

International Business

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental drivers, International Business may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares ESG Advanced

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Advanced are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares ESG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with International Business and IShares ESG

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

The idea behind International Business Machines and iShares ESG Advanced 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.

Check out your portfolio center.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.