Correlation Between IShares Core and IShares ESG

Can any of the company-specific risk be diversified away by investing in both IShares Core 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 Core 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 Core Income and iShares ESG Conservative, you can compare the effects of market volatilities on IShares Core 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 Core with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and IShares ESG.

Diversification Opportunities for IShares Core and IShares ESG

0.8

Correlation Coefficient

IShares Core  IShares ESG

Very poor diversification

The 3 months correlation between IShares and IShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Income and iShares ESG Conservative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Conservative and IShares Core 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 Core Income 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 Conservative has no effect on the direction of IShares Core i.e., IShares Core and IShares ESG go up and down completely randomly.

Pair Corralation between IShares Core and IShares ESG

Assuming the 90 days trading horizon IShares Core is expected to generate 1.88 times less return on investment than IShares ESG. But when comparing it to its historical volatility, iShares Core Income is 1.67 times less risky than IShares ESG. It trades about 0.12 of its potential returns per unit of risk. iShares ESG Conservative is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,470  in iShares ESG Conservative on September 17, 2024 and sell it today you would earn a total of  86.00  from holding iShares ESG Conservative or generate 1.92% return on investment over 90 days.

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

iShares Core Income  vs.  iShares ESG Conservative

iShares Core Income

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Income are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares ESG Conservative

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Conservative are ranked lower than 8 (%) 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 IShares Core and IShares ESG

The main advantage of trading using opposite IShares Core and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 Core Income and iShares ESG Conservative 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.