Correlation Between IShares ESG and Vanguard ESG

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

Diversification Opportunities for IShares ESG and Vanguard ESG

0.96

Correlation Coefficient

IShares ESG  Vanguard ESG

Almost no diversification

The 3 months correlation between IShares and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and Vanguard ESG International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard ESG Interna 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 Vanguard ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard ESG Interna has no effect on the direction of IShares ESG i.e., IShares ESG and Vanguard ESG go up and down completely randomly.

Pair Corralation between IShares ESG and Vanguard ESG

Given the investment horizon of 90 days iShares ESG Aware is expected to generate 1.34 times more return on investment than Vanguard ESG. However, IShares ESG is 1.34 times more volatile than Vanguard ESG International. It trades about -0.12 of its potential returns per unit of risk. Vanguard ESG International is currently generating about -0.27 per unit of risk. If you would invest  3,448  in iShares ESG Aware on October 6, 2024 and sell it today you would lose (80.00) from holding iShares ESG Aware or give up 2.32% 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.  Vanguard ESG International

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 latest unsteady performance, the Etf's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Vanguard ESG Interna

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard ESG International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with IShares ESG and Vanguard ESG

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

The idea behind iShares ESG Aware and Vanguard ESG International 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.