Correlation Between IShares MSCI and IShares ESG

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Can any of the company-specific risk be diversified away by investing in both IShares MSCI 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 IShares MSCI and IShares ESG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI USA and iShares ESG USD, you can compare the effects of market volatilities on IShares MSCI 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 IShares MSCI with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and IShares ESG.

Diversification Opportunities for IShares MSCI and IShares ESG

-0.54
  Correlation Coefficient

Excellent diversification

The 3 months correlation between IShares and IShares is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and iShares ESG USD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG USD and IShares MSCI 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 MSCI USA 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 USD has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares ESG go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares ESG

Given the investment horizon of 90 days iShares MSCI USA is expected to generate 1.83 times more return on investment than IShares ESG. However, IShares MSCI is 1.83 times more volatile than iShares ESG USD. It trades about 0.22 of its potential returns per unit of risk. iShares ESG USD is currently generating about 0.09 per unit of risk. If you would invest  12,012  in iShares MSCI USA on August 31, 2024 and sell it today you would earn a total of  487.00  from holding iShares MSCI USA or generate 4.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

iShares MSCI USA  vs.  iShares ESG USD

 Performance 
       Timeline  
iShares MSCI USA 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in December 2024.
iShares ESG USD 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days iShares ESG USD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares ESG is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

IShares MSCI and IShares ESG Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares MSCI and IShares ESG

The main advantage of trading using opposite IShares MSCI and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI 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 iShares MSCI USA and iShares ESG USD 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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