Correlation Between IShares ESG and Schwab 5

Can any of the company-specific risk be diversified away by investing in both IShares ESG and Schwab 5 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 Schwab 5 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 Schwab 5 10 Year, you can compare the effects of market volatilities on IShares ESG and Schwab 5 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 Schwab 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and Schwab 5.

Diversification Opportunities for IShares ESG and Schwab 5

0.98

Correlation Coefficient

IShares ESG  Schwab 5

Almost no diversification

The 3 months correlation between IShares and Schwab is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG USD and Schwab 5 10 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab 5 10 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 Schwab 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab 5 10 has no effect on the direction of IShares ESG i.e., IShares ESG and Schwab 5 go up and down completely randomly.

Pair Corralation between IShares ESG and Schwab 5

Given the investment horizon of 90 days IShares ESG is expected to generate 1.55 times less return on investment than Schwab 5. In addition to that, IShares ESG is 1.09 times more volatile than Schwab 5 10 Year. It trades about 0.01 of its total potential returns per unit of risk. Schwab 5 10 Year is currently generating about 0.02 per unit of volatility. If you would invest  2,249  in Schwab 5 10 Year on September 2, 2024 and sell it today you would earn a total of  11.00  from holding Schwab 5 10 Year or generate 0.49% 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 USD  vs.  Schwab 5 10 Year

iShares ESG USD

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG USD are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Schwab 5 10

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab 5 10 Year are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Schwab 5 is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares ESG and Schwab 5

The main advantage of trading using opposite IShares ESG and Schwab 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares ESG position performs unexpectedly, Schwab 5 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 Schwab 5 will offset losses from the drop in Schwab 5's long position.

The idea behind iShares ESG USD and Schwab 5 10 Year 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.