Correlation Between TD Equity and IShares ESG

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

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

Diversification Opportunities for TD Equity and IShares ESG

0.89

Correlation Coefficient

TD Equity  IShares ESG

Very poor diversification

The 3 months correlation between TPU and IShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding TD Equity Index and iShares ESG Aware in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Aware and TD Equity 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 TD Equity Index 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 Aware has no effect on the direction of TD Equity i.e., TD Equity and IShares ESG go up and down completely randomly.

Pair Corralation between TD Equity and IShares ESG

Assuming the 90 days trading horizon TD Equity Index is expected to under-perform the IShares ESG. In addition to that, TD Equity is 1.17 times more volatile than iShares ESG Aware. It trades about -0.11 of its total potential returns per unit of risk. iShares ESG Aware is currently generating about -0.02 per unit of volatility. If you would invest  3,099  in iShares ESG Aware on December 21, 2024 and sell it today you would lose (36.00) from holding iShares ESG Aware or give up 1.16% of portfolio value over 90 days.

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

TD Equity Index  vs.  iShares ESG Aware

TD Equity Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days TD Equity Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

iShares ESG Aware

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares ESG Aware has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares ESG is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with TD Equity and IShares ESG

The main advantage of trading using opposite TD Equity and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TD Equity 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 TD Equity Index and iShares ESG Aware 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.