Correlation Between IShares ESG and FlexShares Credit

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

By analyzing existing cross correlation between iShares ESG USD and FlexShares Credit Scored Long, you can compare the effects of market volatilities on IShares ESG and FlexShares Credit 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 FlexShares Credit. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and FlexShares Credit.

Diversification Opportunities for IShares ESG and FlexShares Credit

0.92

Correlation Coefficient

IShares ESG  FlexShares Credit

Almost no diversification

The 3 months correlation between IShares and FlexShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG USD and FlexShares Credit Scored Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Credit 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 USD are associated (or correlated) with FlexShares Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Credit has no effect on the direction of IShares ESG i.e., IShares ESG and FlexShares Credit go up and down completely randomly.

Pair Corralation between IShares ESG and FlexShares Credit

Given the investment horizon of 90 days iShares ESG USD is expected to generate 0.55 times more return on investment than FlexShares Credit. However, iShares ESG USD is 1.8 times less risky than FlexShares Credit. It trades about 0.1 of its potential returns per unit of risk. FlexShares Credit Scored Long is currently generating about 0.02 per unit of risk. If you would invest  2,258  in iShares ESG USD on December 29, 2024 and sell it today you would earn a total of  44.00  from holding iShares ESG USD or generate 1.95% return on investment over 90 days.

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

iShares ESG USD  vs.  FlexShares Credit Scored Long

iShares ESG USD

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG USD are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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.

FlexShares Credit

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Credit Scored Long are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, FlexShares Credit is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares ESG and FlexShares Credit

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

The idea behind iShares ESG USD and FlexShares Credit Scored Long 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.