Correlation Between IShares ESG and Overlay Shares

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

Diversification Opportunities for IShares ESG and Overlay Shares

0.94

Correlation Coefficient

IShares ESG  Overlay Shares

Almost no diversification

The 3 months correlation between IShares and Overlay is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and Overlay Shares Foreign in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Foreign 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 Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Foreign has no effect on the direction of IShares ESG i.e., IShares ESG and Overlay Shares go up and down completely randomly.

Pair Corralation between IShares ESG and Overlay Shares

Given the investment horizon of 90 days iShares ESG Aware is expected to generate 0.9 times more return on investment than Overlay Shares. However, iShares ESG Aware is 1.12 times less risky than Overlay Shares. It trades about -0.08 of its potential returns per unit of risk. Overlay Shares Foreign is currently generating about -0.14 per unit of risk. If you would invest  8,028  in iShares ESG Aware on October 21, 2024 and sell it today you would lose (311.00) from holding iShares ESG Aware or give up 3.87% of portfolio value over 90 days.

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

iShares ESG Aware  vs.  Overlay Shares Foreign

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Overlay Shares Foreign

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Overlay Shares Foreign has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with IShares ESG and Overlay Shares

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

The idea behind iShares ESG Aware and Overlay Shares Foreign 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..