Correlation Between IShares ESG and Principal
Can any of the company-specific risk be diversified away by investing in both IShares ESG and Principal 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 Principal 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 Principal, you can compare the effects of market volatilities on IShares ESG and Principal 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 Principal. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and Principal.
Diversification Opportunities for IShares ESG and Principal
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between IShares and Principal is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and Principal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal 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 Principal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal has no effect on the direction of IShares ESG i.e., IShares ESG and Principal go up and down completely randomly.
Pair Corralation between IShares ESG and Principal
Given the investment horizon of 90 days IShares ESG is expected to generate 1.85 times less return on investment than Principal. But when comparing it to its historical volatility, iShares ESG Aware is 1.06 times less risky than Principal. It trades about 0.03 of its potential returns per unit of risk. Principal is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 2,202 in Principal on August 27, 2024 and sell it today you would earn a total of 59.00 from holding Principal or generate 2.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 13.74% |
| Values | Daily Returns |
iShares ESG Aware vs. Principal
Performance |
| Timeline |
| iShares ESG Aware |
| Principal |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
IShares ESG and Principal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares ESG and Principal
The main advantage of trading using opposite IShares ESG and Principal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares ESG position performs unexpectedly, Principal 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 Principal will offset losses from the drop in Principal's long position.| IShares ESG vs. Dimensional Core Equity | IShares ESG vs. Dimensional Emerging Core | IShares ESG vs. Dimensional Targeted Value | IShares ESG vs. Dimensional Small Cap |
| Principal vs. Dimensional Core Equity | Principal vs. Dimensional Emerging Core | Principal vs. Dimensional Targeted Value | Principal vs. Dimensional Small Cap |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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