Correlation Between IShares ESG and VanEck Energy

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

Diversification Opportunities for IShares ESG and VanEck Energy

0.83

Correlation Coefficient

IShares ESG  VanEck Energy

Very poor diversification

The 3 months correlation between IShares and VanEck is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and VanEck Energy Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Energy Income 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 VanEck Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Energy Income has no effect on the direction of IShares ESG i.e., IShares ESG and VanEck Energy go up and down completely randomly.

Pair Corralation between IShares ESG and VanEck Energy

Given the investment horizon of 90 days IShares ESG is expected to generate 4.7 times less return on investment than VanEck Energy. But when comparing it to its historical volatility, iShares ESG Aware is 1.78 times less risky than VanEck Energy. It trades about 0.08 of its potential returns per unit of risk. VanEck Energy Income is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  8,349  in VanEck Energy Income on September 13, 2024 and sell it today you would earn a total of  1,205  from holding VanEck Energy Income or generate 14.43% return on investment over 90 days.

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

iShares ESG Aware  vs.  VanEck Energy Income

iShares ESG Aware

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic 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.

VanEck Energy Income

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Energy Income are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, VanEck Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares ESG and VanEck Energy

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

The idea behind iShares ESG Aware and VanEck Energy Income 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.