Correlation Between FlexShares STOXX and IShares ESG

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

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

Diversification Opportunities for FlexShares STOXX and IShares ESG

0.98

Correlation Coefficient

FlexShares STOXX  IShares ESG

Almost no diversification

The 3 months correlation between FlexShares and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares STOXX ESG 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 FlexShares STOXX 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 FlexShares STOXX ESG 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 FlexShares STOXX i.e., FlexShares STOXX and IShares ESG go up and down completely randomly.

Pair Corralation between FlexShares STOXX and IShares ESG

Considering the 90-day investment horizon FlexShares STOXX ESG is expected to under-perform the IShares ESG. But the etf apears to be less risky and, when comparing its historical volatility, FlexShares STOXX ESG is 1.13 times less risky than IShares ESG. The etf trades about -0.17 of its potential returns per unit of risk. The iShares ESG Aware is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  13,342  in iShares ESG Aware on October 12, 2024 and sell it today you would lose (373.00) from holding iShares ESG Aware or give up 2.8% of portfolio value over 90 days.

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

FlexShares STOXX ESG  vs.  iShares ESG Aware

FlexShares STOXX ESG

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares STOXX ESG are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, FlexShares STOXX is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares ESG Aware

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, IShares ESG is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with FlexShares STOXX and IShares ESG

The main advantage of trading using opposite FlexShares STOXX and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares STOXX 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 FlexShares STOXX ESG 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.