Correlation Between Nasdaq and IShares ESG

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

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

Diversification Opportunities for Nasdaq and IShares ESG

0.87

Correlation Coefficient

Nasdaq  IShares ESG

Very poor diversification

The 3 months correlation between Nasdaq and IShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and iShares ESG Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Balanced and Nasdaq 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 Nasdaq Inc 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 Balanced has no effect on the direction of Nasdaq i.e., Nasdaq and IShares ESG go up and down completely randomly.

Pair Corralation between Nasdaq and IShares ESG

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 2.13 times more return on investment than IShares ESG. However, Nasdaq is 2.13 times more volatile than iShares ESG Balanced. It trades about 0.13 of its potential returns per unit of risk. iShares ESG Balanced is currently generating about 0.15 per unit of risk. If you would invest  5,625  in Nasdaq Inc on September 17, 2024 and sell it today you would earn a total of  2,387  from holding Nasdaq Inc or generate 42.44% return on investment over 90 days.

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

Nasdaq Inc  vs.  iShares ESG Balanced

Nasdaq Inc

Risk-Adjusted Performance

12 of 100

Good

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

iShares ESG Balanced

Risk-Adjusted Performance

16 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Balanced are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares ESG is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Nasdaq and IShares ESG

The main advantage of trading using opposite Nasdaq and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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 Nasdaq Inc and iShares ESG Balanced 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.