Correlation Between IShares ESG and RPAR Risk

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

Diversification Opportunities for IShares ESG and RPAR Risk

0.81

Correlation Coefficient

IShares ESG  RPAR Risk

Very poor diversification

The 3 months correlation between IShares and RPAR is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aggregate and RPAR Risk Parity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RPAR Risk Parity 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 RPAR Risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RPAR Risk Parity has no effect on the direction of IShares ESG i.e., IShares ESG and RPAR Risk go up and down completely randomly.

Pair Corralation between IShares ESG and RPAR Risk

Given the investment horizon of 90 days iShares ESG Aggregate is expected to under-perform the RPAR Risk. But the etf apears to be less risky and, when comparing its historical volatility, iShares ESG Aggregate is 2.09 times less risky than RPAR Risk. The etf trades about -0.07 of its potential returns per unit of risk. The RPAR Risk Parity is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,992  in RPAR Risk Parity on September 5, 2024 and sell it today you would lose (5.00) from holding RPAR Risk Parity or give up 0.25% of portfolio value over 90 days.

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

iShares ESG Aggregate  vs.  RPAR Risk Parity

iShares ESG Aggregate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares ESG Aggregate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IShares ESG is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

RPAR Risk Parity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RPAR Risk Parity has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, RPAR Risk is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares ESG and RPAR Risk

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

The idea behind iShares ESG Aggregate and RPAR Risk Parity 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 Transaction History module to view history of all your transactions and understand their impact on performance.