Correlation Between Discipline Fund and IShares ESG

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

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

Diversification Opportunities for Discipline Fund and IShares ESG

0.89

Correlation Coefficient

Discipline Fund  IShares ESG

Very poor diversification

The 3 months correlation between Discipline and IShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Discipline Fund ETF and iShares ESG Aware in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Aware and Discipline Fund 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 Discipline Fund ETF 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 Aware has no effect on the direction of Discipline Fund i.e., Discipline Fund and IShares ESG go up and down completely randomly.

Pair Corralation between Discipline Fund and IShares ESG

Given the investment horizon of 90 days Discipline Fund ETF is expected to generate 1.03 times more return on investment than IShares ESG. However, Discipline Fund is 1.03 times more volatile than iShares ESG Aware. It trades about 0.12 of its potential returns per unit of risk. iShares ESG Aware is currently generating about 0.05 per unit of risk. If you would invest  2,233  in Discipline Fund ETF on December 30, 2024 and sell it today you would earn a total of  59.00  from holding Discipline Fund ETF or generate 2.64% return on investment over 90 days.

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

Discipline Fund ETF  vs.  iShares ESG Aware

Discipline Fund ETF

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Discipline Fund ETF are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Discipline Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares ESG Aware

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, IShares ESG is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Discipline Fund and IShares ESG

The main advantage of trading using opposite Discipline Fund and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discipline Fund 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 Discipline Fund ETF and iShares ESG Aware 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 Global Correlations module to find global opportunities by holding instruments from different markets.