Correlation Between Xtrackers and IShares ESG

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

By analyzing existing cross correlation between Xtrackers SP 500 and iShares ESG Advanced, you can compare the effects of market volatilities on Xtrackers 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 Xtrackers with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers and IShares ESG.

Diversification Opportunities for Xtrackers and IShares ESG

0.97

Correlation Coefficient

Xtrackers  IShares ESG

Almost no diversification

The 3 months correlation between Xtrackers and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers SP 500 and iShares ESG Advanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Advanced and Xtrackers 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 Xtrackers SP 500 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 Advanced has no effect on the direction of Xtrackers i.e., Xtrackers and IShares ESG go up and down completely randomly.

Pair Corralation between Xtrackers and IShares ESG

Given the investment horizon of 90 days Xtrackers SP 500 is expected to under-perform the IShares ESG. But the etf apears to be less risky and, when comparing its historical volatility, Xtrackers SP 500 is 1.34 times less risky than IShares ESG. The etf trades about -0.11 of its potential returns per unit of risk. The iShares ESG Advanced is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  5,041  in iShares ESG Advanced on December 21, 2024 and sell it today you would lose (327.00) from holding iShares ESG Advanced or give up 6.49% of portfolio value over 90 days.

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

Xtrackers SP 500  vs.  iShares ESG Advanced

Xtrackers SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xtrackers SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

iShares ESG Advanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares ESG Advanced has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with Xtrackers and IShares ESG

The main advantage of trading using opposite Xtrackers and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers 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 Xtrackers SP 500 and iShares ESG Advanced 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.