Correlation Between IShares ESG and Xtrackers

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

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

Diversification Opportunities for IShares ESG and Xtrackers

0.99

Correlation Coefficient

IShares ESG  Xtrackers

No risk reduction

The 3 months correlation between IShares and Xtrackers is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG MSCI and Xtrackers SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 500 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 MSCI are associated (or correlated) with Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP 500 has no effect on the direction of IShares ESG i.e., IShares ESG and Xtrackers go up and down completely randomly.

Pair Corralation between IShares ESG and Xtrackers

Given the investment horizon of 90 days iShares ESG MSCI is expected to generate 1.06 times more return on investment than Xtrackers. However, IShares ESG is 1.06 times more volatile than Xtrackers SP 500. It trades about 0.2 of its potential returns per unit of risk. Xtrackers SP 500 is currently generating about 0.19 per unit of risk. If you would invest  9,677  in iShares ESG MSCI on September 2, 2024 and sell it today you would earn a total of  991.00  from holding iShares ESG MSCI or generate 10.24% 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 MSCI  vs.  Xtrackers SP 500

iShares ESG MSCI

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG MSCI are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Xtrackers SP 500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Xtrackers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares ESG and Xtrackers

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

The idea behind iShares ESG MSCI and Xtrackers SP 500 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.