Correlation Between IShares ESG and Harvest Diversified

Can any of the company-specific risk be diversified away by investing in both IShares ESG and Harvest Diversified 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 Harvest Diversified into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares ESG Growth and Harvest Diversified Monthly, you can compare the effects of market volatilities on IShares ESG and Harvest Diversified 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 Harvest Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and Harvest Diversified.

Diversification Opportunities for IShares ESG and Harvest Diversified

0.75

Correlation Coefficient

IShares ESG  Harvest Diversified

Poor diversification

The 3 months correlation between IShares and Harvest is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Growth and Harvest Diversified Monthly in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harvest Diversified 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 Growth are associated (or correlated) with Harvest Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harvest Diversified has no effect on the direction of IShares ESG i.e., IShares ESG and Harvest Diversified go up and down completely randomly.

Pair Corralation between IShares ESG and Harvest Diversified

Assuming the 90 days trading horizon iShares ESG Growth is expected to generate 1.02 times more return on investment than Harvest Diversified. However, IShares ESG is 1.02 times more volatile than Harvest Diversified Monthly. It trades about -0.05 of its potential returns per unit of risk. Harvest Diversified Monthly is currently generating about -0.06 per unit of risk. If you would invest  6,014  in iShares ESG Growth on December 4, 2024 and sell it today you would lose (150.00) from holding iShares ESG Growth or give up 2.49% of portfolio value over 90 days.

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

iShares ESG Growth  vs.  Harvest Diversified Monthly

iShares ESG Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares ESG Growth has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares ESG is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Harvest Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days Harvest Diversified Monthly has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Harvest Diversified is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares ESG and Harvest Diversified

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

The idea behind iShares ESG Growth and Harvest Diversified Monthly 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.