Correlation Between PGIM Active and IShares ESG

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

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

Diversification Opportunities for PGIM Active and IShares ESG

0.73

Correlation Coefficient

PGIM Active  IShares ESG

Poor diversification

The 3 months correlation between PGIM and IShares is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding PGIM Active High and iShares ESG Aggregate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Aggregate and PGIM Active 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 PGIM Active High 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 Aggregate has no effect on the direction of PGIM Active i.e., PGIM Active and IShares ESG go up and down completely randomly.

Pair Corralation between PGIM Active and IShares ESG

Given the investment horizon of 90 days PGIM Active is expected to generate 1.3 times less return on investment than IShares ESG. But when comparing it to its historical volatility, PGIM Active High is 1.41 times less risky than IShares ESG. It trades about 0.14 of its potential returns per unit of risk. iShares ESG Aggregate is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,613  in iShares ESG Aggregate on December 25, 2024 and sell it today you would earn a total of  110.00  from holding iShares ESG Aggregate or generate 2.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

PGIM Active High  vs.  iShares ESG Aggregate

PGIM Active High

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PGIM Active High are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, PGIM Active is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

iShares ESG Aggregate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aggregate are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, IShares ESG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PGIM Active and IShares ESG

The main advantage of trading using opposite PGIM Active and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PGIM Active 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 PGIM Active High and iShares ESG Aggregate 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..