Correlation Between IShares ESG and IShares SP

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

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

Diversification Opportunities for IShares ESG and IShares SP

0.81

Correlation Coefficient

IShares ESG  IShares SP

Very poor diversification

The 3 months correlation between IShares and IShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and iShares SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Global 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 Aware are associated (or correlated) with IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Global has no effect on the direction of IShares ESG i.e., IShares ESG and IShares SP go up and down completely randomly.

Pair Corralation between IShares ESG and IShares SP

Assuming the 90 days trading horizon iShares ESG Aware is expected to under-perform the IShares SP. But the etf apears to be less risky and, when comparing its historical volatility, iShares ESG Aware is 1.62 times less risky than IShares SP. The etf trades about -0.24 of its potential returns per unit of risk. The iShares SP Global is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  5,762  in iShares SP Global on September 23, 2024 and sell it today you would earn a total of  320.00  from holding iShares SP Global or generate 5.55% return on investment over 90 days.

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

iShares ESG Aware  vs.  iShares SP Global

iShares ESG Aware

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 11 (%) 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.

iShares SP Global

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with IShares ESG and IShares SP

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

The idea behind iShares ESG Aware and iShares SP Global 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.