Correlation Between Vanguard and IShares ESG

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

Diversification Opportunities for Vanguard and IShares ESG

1.0

Correlation Coefficient

Vanguard  IShares ESG

No risk reduction

The 3 months correlation between Vanguard and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Small Cap and iShares ESG Screened in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Screened and Vanguard 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 SP Small Cap 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 Screened has no effect on the direction of Vanguard i.e., Vanguard and IShares ESG go up and down completely randomly.

Pair Corralation between Vanguard and IShares ESG

Given the investment horizon of 90 days Vanguard is expected to generate 1.07 times less return on investment than IShares ESG. But when comparing it to its historical volatility, Vanguard SP Small Cap is 1.05 times less risky than IShares ESG. It trades about 0.04 of its potential returns per unit of risk. iShares ESG Screened is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,808  in iShares ESG Screened on October 9, 2024 and sell it today you would earn a total of  336.00  from holding iShares ESG Screened or generate 8.82% return on investment over 90 days.

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

Vanguard SP Small Cap  vs.  iShares ESG Screened

Vanguard SP Small

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Small Cap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares ESG Screened

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Screened are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking indicators, IShares ESG is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Vanguard and IShares ESG

The main advantage of trading using opposite Vanguard and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 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 SP Small Cap and iShares ESG Screened 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.