Correlation Between IShares ESG and Vanguard Growth

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

Diversification Opportunities for IShares ESG and Vanguard Growth

0.95

Correlation Coefficient

IShares ESG  Vanguard Growth

Almost no diversification

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

Pair Corralation between IShares ESG and Vanguard Growth

Given the investment horizon of 90 days iShares ESG Advanced is expected to under-perform the Vanguard Growth. But the etf apears to be less risky and, when comparing its historical volatility, iShares ESG Advanced is 1.09 times less risky than Vanguard Growth. The etf trades about -0.14 of its potential returns per unit of risk. The Vanguard Growth Index is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  40,851  in Vanguard Growth Index on September 12, 2024 and sell it today you would earn a total of  1,143  from holding Vanguard Growth Index or generate 2.8% 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 Advanced  vs.  Vanguard Growth Index

iShares ESG Advanced

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Advanced are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Growth Index

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Index are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares ESG and Vanguard Growth

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

The idea behind iShares ESG Advanced and Vanguard Growth Index 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.