Correlation Between IShares ESG and Vanguard Core

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

Diversification Opportunities for IShares ESG and Vanguard Core

1.0

Correlation Coefficient

IShares ESG  Vanguard Core

No risk reduction

The 3 months correlation between IShares and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aggregate and Vanguard Core Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Core Bond 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 Vanguard Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Core Bond has no effect on the direction of IShares ESG i.e., IShares ESG and Vanguard Core go up and down completely randomly.

Pair Corralation between IShares ESG and Vanguard Core

Given the investment horizon of 90 days iShares ESG Aggregate is expected to generate 1.07 times more return on investment than Vanguard Core. However, IShares ESG is 1.07 times more volatile than Vanguard Core Bond. It trades about 0.13 of its potential returns per unit of risk. Vanguard Core Bond is currently generating about 0.13 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

iShares ESG Aggregate  vs.  Vanguard Core Bond

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.

Vanguard Core Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Core Bond are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Vanguard Core 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 Vanguard Core

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

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