Correlation Between IShares ESG and Sparta Capital

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

Diversification Opportunities for IShares ESG and Sparta Capital

-0.44

Correlation Coefficient

IShares ESG  Sparta Capital

Very good diversification

The 3 months correlation between IShares and Sparta is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aggregate and Sparta Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparta Capital 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 Sparta Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparta Capital has no effect on the direction of IShares ESG i.e., IShares ESG and Sparta Capital go up and down completely randomly.

Pair Corralation between IShares ESG and Sparta Capital

Given the investment horizon of 90 days IShares ESG is expected to generate 5.45 times less return on investment than Sparta Capital. But when comparing it to its historical volatility, iShares ESG Aggregate is 61.01 times less risky than Sparta Capital. It trades about 0.1 of its potential returns per unit of risk. Sparta Capital is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1.03  in Sparta Capital on December 29, 2024 and sell it today you would lose (0.92) from holding Sparta Capital or give up 89.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

iShares ESG Aggregate  vs.  Sparta Capital

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 7 (%) 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.

Sparta Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sparta Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Sparta Capital may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares ESG and Sparta Capital

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

The idea behind iShares ESG Aggregate and Sparta Capital 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.