Correlation Between IShares ESG and Vanguard ESG

Can any of the company-specific risk be diversified away by investing in both IShares ESG and Vanguard 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 IShares ESG and Vanguard ESG 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 Vanguard ESG Corporate, you can compare the effects of market volatilities on IShares ESG and Vanguard 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 IShares ESG with a short position of Vanguard ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and Vanguard ESG.

Diversification Opportunities for IShares ESG and Vanguard ESG

1.0

Correlation Coefficient

IShares ESG  Vanguard ESG

No risk reduction

The 3 months correlation between IShares and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG USD and Vanguard ESG Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard ESG Corporate 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 Vanguard ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard ESG Corporate has no effect on the direction of IShares ESG i.e., IShares ESG and Vanguard ESG go up and down completely randomly.

Pair Corralation between IShares ESG and Vanguard ESG

Given the investment horizon of 90 days iShares ESG USD is expected to generate 1.05 times more return on investment than Vanguard ESG. However, IShares ESG is 1.05 times more volatile than Vanguard ESG Corporate. It trades about 0.08 of its potential returns per unit of risk. Vanguard ESG Corporate is currently generating about 0.08 per unit of risk. If you would invest  2,058  in iShares ESG USD on October 5, 2024 and sell it today you would earn a total of  209.00  from holding iShares ESG USD or generate 10.16% 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.  Vanguard ESG Corporate

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.

Vanguard ESG Corporate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard ESG Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Vanguard ESG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares ESG and Vanguard ESG

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

The idea behind iShares ESG USD and Vanguard ESG Corporate 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.

Check out your portfolio center.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.