Correlation Between IShares ESG and High-yield Municipal

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

By analyzing existing cross correlation between iShares ESG Aggregate and High Yield Municipal Fund, you can compare the effects of market volatilities on IShares ESG and High-yield Municipal 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 High-yield Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and High-yield Municipal.

Diversification Opportunities for IShares ESG and High-yield Municipal

0.64

Correlation Coefficient

IShares ESG  High-yield Municipal

Poor diversification

The 3 months correlation between IShares and High-yield is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aggregate and High Yield Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Municipal 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 Aggregate are associated (or correlated) with High-yield Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Municipal has no effect on the direction of IShares ESG i.e., IShares ESG and High-yield Municipal go up and down completely randomly.

Pair Corralation between IShares ESG and High-yield Municipal

Given the investment horizon of 90 days iShares ESG Aggregate is expected to generate 1.13 times more return on investment than High-yield Municipal. However, IShares ESG is 1.13 times more volatile than High Yield Municipal Fund. It trades about 0.13 of its potential returns per unit of risk. High Yield Municipal Fund is currently generating about -0.03 per unit of risk. If you would invest  4,621  in iShares ESG Aggregate on December 30, 2024 and sell it today you would earn a total of  115.00  from holding iShares ESG Aggregate or generate 2.49% return on investment over 90 days.

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

iShares ESG Aggregate  vs.  High Yield Municipal Fund

iShares ESG Aggregate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aggregate are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, IShares ESG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

High Yield Municipal

Risk-Adjusted Performance

Very Weak

Over the last 90 days High Yield Municipal Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, High-yield Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares ESG and High-yield Municipal

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

The idea behind iShares ESG Aggregate and High Yield Municipal Fund 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.