Correlation Between WisdomTree International and IShares ESG

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

By analyzing existing cross correlation between WisdomTree International Hedged and iShares ESG Aware, you can compare the effects of market volatilities on WisdomTree International and IShares 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 WisdomTree International with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree International and IShares ESG.

Diversification Opportunities for WisdomTree International and IShares ESG

0.66

Correlation Coefficient

WisdomTree International  IShares ESG

Poor diversification

The 3 months correlation between WisdomTree and IShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree International Hedge and iShares ESG Aware in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Aware and WisdomTree International 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 WisdomTree International Hedged are associated (or correlated) with IShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG Aware has no effect on the direction of WisdomTree International i.e., WisdomTree International and IShares ESG go up and down completely randomly.

Pair Corralation between WisdomTree International and IShares ESG

Given the investment horizon of 90 days WisdomTree International is expected to generate 5.56 times less return on investment than IShares ESG. But when comparing it to its historical volatility, WisdomTree International Hedged is 1.63 times less risky than IShares ESG. It trades about 0.01 of its potential returns per unit of risk. iShares ESG Aware is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,425  in iShares ESG Aware on September 15, 2024 and sell it today you would earn a total of  86.00  from holding iShares ESG Aware or generate 2.51% return on investment over 90 days.

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

WisdomTree International Hedge  vs.  iShares ESG Aware

WisdomTree International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree International Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, WisdomTree International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares ESG Aware

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, IShares ESG is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with WisdomTree International and IShares ESG

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

The idea behind WisdomTree International Hedged and iShares ESG Aware 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .