Correlation Between IShares Core and NBI Sustainable

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

By analyzing existing cross correlation between iShares Core SPTSX and NBI Sustainable Global, you can compare the effects of market volatilities on IShares Core and NBI Sustainable 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 Core with a short position of NBI Sustainable. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and NBI Sustainable.

Diversification Opportunities for IShares Core and NBI Sustainable

0.45

Correlation Coefficient

IShares Core  NBI Sustainable

Very weak diversification

The 3 months correlation between IShares and NBI is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SPTSX and NBI Sustainable Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBI Sustainable Global and IShares Core 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 Core SPTSX are associated (or correlated) with NBI Sustainable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBI Sustainable Global has no effect on the direction of IShares Core i.e., IShares Core and NBI Sustainable go up and down completely randomly.

Pair Corralation between IShares Core and NBI Sustainable

Assuming the 90 days trading horizon iShares Core SPTSX is expected to generate 0.75 times more return on investment than NBI Sustainable. However, iShares Core SPTSX is 1.34 times less risky than NBI Sustainable. It trades about 0.0 of its potential returns per unit of risk. NBI Sustainable Global is currently generating about -0.05 per unit of risk. If you would invest  4,073  in iShares Core SPTSX on December 3, 2024 and sell it today you would lose (14.00) from holding iShares Core SPTSX or give up 0.34% of portfolio value over 90 days.

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

iShares Core SPTSX  vs.  NBI Sustainable Global

iShares Core SPTSX

Risk-Adjusted Performance

Very Weak

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

NBI Sustainable Global

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares Core and NBI Sustainable

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

The idea behind iShares Core SPTSX and NBI Sustainable 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.

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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.