Correlation Between FlexShares Disciplined and IShares ESG

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

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

Diversification Opportunities for FlexShares Disciplined and IShares ESG

0.94

Correlation Coefficient

FlexShares Disciplined  IShares ESG

Almost no diversification

The 3 months correlation between FlexShares and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Disciplined Duratio and iShares ESG USD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG USD and FlexShares Disciplined 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 FlexShares Disciplined Duration 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 USD has no effect on the direction of FlexShares Disciplined i.e., FlexShares Disciplined and IShares ESG go up and down completely randomly.

Pair Corralation between FlexShares Disciplined and IShares ESG

Given the investment horizon of 90 days FlexShares Disciplined Duration is expected to generate 0.87 times more return on investment than IShares ESG. However, FlexShares Disciplined Duration is 1.16 times less risky than IShares ESG. It trades about -0.1 of its potential returns per unit of risk. iShares ESG USD is currently generating about -0.11 per unit of risk. If you would invest  2,085  in FlexShares Disciplined Duration on September 15, 2024 and sell it today you would lose (43.00) from holding FlexShares Disciplined Duration or give up 2.06% of portfolio value over 90 days.

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

FlexShares Disciplined Duratio  vs.  iShares ESG USD

FlexShares Disciplined

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares Disciplined Duration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, FlexShares Disciplined is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares ESG USD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares ESG USD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares ESG is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FlexShares Disciplined and IShares ESG

The main advantage of trading using opposite FlexShares Disciplined and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares Disciplined 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 FlexShares Disciplined Duration and iShares ESG USD 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.