Correlation Between Vanguard FTSE and IShares ESG

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

Diversification Opportunities for Vanguard FTSE and IShares ESG

0.99

Correlation Coefficient

Vanguard FTSE  IShares ESG

No risk reduction

The 3 months correlation between Vanguard and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Canada and iShares ESG Advanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Advanced and Vanguard FTSE 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 FTSE Canada 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 Advanced has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and IShares ESG go up and down completely randomly.

Pair Corralation between Vanguard FTSE and IShares ESG

Assuming the 90 days trading horizon Vanguard FTSE is expected to generate 1.34 times less return on investment than IShares ESG. But when comparing it to its historical volatility, Vanguard FTSE Canada is 1.1 times less risky than IShares ESG. It trades about 0.28 of its potential returns per unit of risk. iShares ESG Advanced is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  6,986  in iShares ESG Advanced on September 13, 2024 and sell it today you would earn a total of  841.00  from holding iShares ESG Advanced or generate 12.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard FTSE Canada  vs.  iShares ESG Advanced

Vanguard FTSE Canada

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Canada are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares ESG Advanced

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Advanced are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard FTSE and IShares ESG

The main advantage of trading using opposite Vanguard FTSE and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard FTSE 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 FTSE Canada and iShares ESG Advanced 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.