Correlation Between IShares ESG and IShares ESG

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

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

Diversification Opportunities for IShares ESG and IShares ESG

0.81

Correlation Coefficient

IShares ESG  IShares ESG

Very poor diversification

The 3 months correlation between IShares and IShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Advanced and iShares ESG MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG MSCI 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 Advanced 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 MSCI has no effect on the direction of IShares ESG i.e., IShares ESG and IShares ESG go up and down completely randomly.

Pair Corralation between IShares ESG and IShares ESG

Given the investment horizon of 90 days iShares ESG Advanced is expected to generate 1.59 times more return on investment than IShares ESG. However, IShares ESG is 1.59 times more volatile than iShares ESG MSCI. It trades about -0.15 of its potential returns per unit of risk. iShares ESG MSCI is currently generating about -0.31 per unit of risk. If you would invest  5,170  in iShares ESG Advanced on September 22, 2024 and sell it today you would lose (167.00) from holding iShares ESG Advanced or give up 3.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

iShares ESG Advanced  vs.  iShares ESG MSCI

iShares ESG Advanced

Risk-Adjusted Performance

4 of 100

Insignificant

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.

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.

Pair Trading with IShares ESG and IShares ESG

The main advantage of trading using opposite IShares ESG and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares ESG 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 iShares ESG Advanced and iShares ESG MSCI 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.