Correlation Between IShares ESG and WisdomTree Corporate

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

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

Diversification Opportunities for IShares ESG and WisdomTree Corporate

0.95

Correlation Coefficient

IShares ESG  WisdomTree Corporate

Almost no diversification

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

Pair Corralation between IShares ESG and WisdomTree Corporate

Given the investment horizon of 90 days iShares ESG USD is expected to generate 1.09 times more return on investment than WisdomTree Corporate. However, IShares ESG is 1.09 times more volatile than WisdomTree Corporate Bond. It trades about 0.01 of its potential returns per unit of risk. WisdomTree Corporate Bond is currently generating about -0.01 per unit of risk. If you would invest  2,321  in iShares ESG USD on August 30, 2024 and sell it today you would earn a total of  3.00  from holding iShares ESG USD or generate 0.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

iShares ESG USD  vs.  WisdomTree Corporate Bond

iShares ESG USD

Risk-Adjusted Performance

0 of 100

Very Weak

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

WisdomTree Corporate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Corporate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, WisdomTree Corporate is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares ESG and WisdomTree Corporate

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

The idea behind iShares ESG USD and WisdomTree Corporate Bond 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.