Correlation Between Vanguard Balanced and IShares ESG

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

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

Diversification Opportunities for Vanguard Balanced and IShares ESG

0.73

Correlation Coefficient

Vanguard Balanced  IShares ESG

Poor diversification

The 3 months correlation between Vanguard and IShares is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Balanced Portfolio and iShares ESG Conservative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Conservative and Vanguard Balanced 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 Vanguard Balanced Portfolio 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 Conservative has no effect on the direction of Vanguard Balanced i.e., Vanguard Balanced and IShares ESG go up and down completely randomly.

Pair Corralation between Vanguard Balanced and IShares ESG

Assuming the 90 days trading horizon Vanguard Balanced is expected to generate 3.91 times less return on investment than IShares ESG. But when comparing it to its historical volatility, Vanguard Balanced Portfolio is 1.44 times less risky than IShares ESG. It trades about 0.01 of its potential returns per unit of risk. iShares ESG Conservative is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,532  in iShares ESG Conservative on December 1, 2024 and sell it today you would earn a total of  43.00  from holding iShares ESG Conservative or generate 0.95% return on investment over 90 days.

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

Vanguard Balanced Portfolio  vs.  iShares ESG Conservative

Vanguard Balanced

Risk-Adjusted Performance

Very Weak

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

iShares ESG Conservative

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Conservative are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Vanguard Balanced and IShares ESG

The main advantage of trading using opposite Vanguard Balanced and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Balanced 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 Vanguard Balanced Portfolio and iShares ESG Conservative 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.