Correlation Between IShares ESG and Franklin FTSE

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

By analyzing existing cross correlation between iShares ESG Aware and Franklin FTSE Japan, you can compare the effects of market volatilities on IShares ESG and Franklin FTSE 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 Franklin FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and Franklin FTSE.

Diversification Opportunities for IShares ESG and Franklin FTSE

0.77

Correlation Coefficient

IShares ESG  Franklin FTSE

Poor diversification

The 3 months correlation between IShares and Franklin is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and Franklin FTSE Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin FTSE Japan 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 Aware are associated (or correlated) with Franklin FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin FTSE Japan has no effect on the direction of IShares ESG i.e., IShares ESG and Franklin FTSE go up and down completely randomly.

Pair Corralation between IShares ESG and Franklin FTSE

Given the investment horizon of 90 days iShares ESG Aware is expected to under-perform the Franklin FTSE. But the etf apears to be less risky and, when comparing its historical volatility, iShares ESG Aware is 1.32 times less risky than Franklin FTSE. The etf trades about -0.04 of its potential returns per unit of risk. The Franklin FTSE Japan is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,999  in Franklin FTSE Japan on September 5, 2024 and sell it today you would earn a total of  14.00  from holding Franklin FTSE Japan or generate 0.47% return on investment over 90 days.

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

iShares ESG Aware  vs.  Franklin FTSE Japan

iShares ESG Aware

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares ESG Aware has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, IShares ESG is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Franklin FTSE Japan

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with IShares ESG and Franklin FTSE

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

The idea behind iShares ESG Aware and Franklin FTSE Japan 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.