Correlation Between IShares ESG and Distillate Fundamental

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

Diversification Opportunities for IShares ESG and Distillate Fundamental

0.88

Correlation Coefficient

IShares ESG  Distillate Fundamental

Very poor diversification

The 3 months correlation between IShares and Distillate is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and Distillate Fundamental Stabili in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Distillate Fundamental 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 Distillate Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Distillate Fundamental has no effect on the direction of IShares ESG i.e., IShares ESG and Distillate Fundamental go up and down completely randomly.

Pair Corralation between IShares ESG and Distillate Fundamental

Given the investment horizon of 90 days iShares ESG Aware is expected to under-perform the Distillate Fundamental. In addition to that, IShares ESG is 1.27 times more volatile than Distillate Fundamental Stability. It trades about -0.09 of its total potential returns per unit of risk. Distillate Fundamental Stability is currently generating about -0.03 per unit of volatility. If you would invest  5,466  in Distillate Fundamental Stability on December 30, 2024 and sell it today you would lose (84.00) from holding Distillate Fundamental Stability or give up 1.54% of portfolio value over 90 days.

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

iShares ESG Aware  vs.  Distillate Fundamental Stabili

iShares ESG Aware

Risk-Adjusted Performance

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 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.

Distillate Fundamental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Distillate Fundamental Stability has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Distillate Fundamental is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares ESG and Distillate Fundamental

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

The idea behind iShares ESG Aware and Distillate Fundamental Stability 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 Transaction History module to view history of all your transactions and understand their impact on performance.