Correlation Between IShares ESG and Vanguard Large

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

Diversification Opportunities for IShares ESG and Vanguard Large

1.0

Correlation Coefficient

IShares ESG  Vanguard Large

No risk reduction

The 3 months correlation between IShares and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and Vanguard Large Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Large Cap 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 Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Large Cap has no effect on the direction of IShares ESG i.e., IShares ESG and Vanguard Large go up and down completely randomly.

Pair Corralation between IShares ESG and Vanguard Large

Given the investment horizon of 90 days iShares ESG Aware is expected to under-perform the Vanguard Large. But the etf apears to be less risky and, when comparing its historical volatility, iShares ESG Aware is 1.01 times less risky than Vanguard Large. The etf trades about -0.06 of its potential returns per unit of risk. The Vanguard Large Cap Index is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  26,985  in Vanguard Large Cap Index on December 29, 2024 and sell it today you would lose (916.00) from holding Vanguard Large Cap Index or give up 3.39% 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 Large Cap Index

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.

Vanguard Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Large Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard Large is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares ESG and Vanguard Large

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

The idea behind iShares ESG Aware and Vanguard Large Cap Index 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.