Correlation Between IShares Morningstar and IShares ESG

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

Diversification Opportunities for IShares Morningstar and IShares ESG

0.97

Correlation Coefficient

IShares Morningstar  IShares ESG

Almost no diversification

The 3 months correlation between IShares and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares Morningstar Equity 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 IShares Morningstar 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 Morningstar Equity 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 IShares Morningstar i.e., IShares Morningstar and IShares ESG go up and down completely randomly.

Pair Corralation between IShares Morningstar and IShares ESG

Considering the 90-day investment horizon iShares Morningstar Equity is expected to generate 0.86 times more return on investment than IShares ESG. However, iShares Morningstar Equity is 1.17 times less risky than IShares ESG. It trades about -0.01 of its potential returns per unit of risk. iShares ESG Screened is currently generating about -0.05 per unit of risk. If you would invest  7,183  in iShares Morningstar Equity on February 9, 2024 and sell it today you would lose (25.00) from holding iShares Morningstar Equity or give up 0.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

iShares Morningstar Equity  vs.  iShares ESG Screened

iShares Morningstar

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Equity are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking signals, IShares Morningstar is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares ESG Screened

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Screened are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward-looking indicators, IShares ESG is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Morningstar and IShares ESG

The main advantage of trading using opposite IShares Morningstar and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Morningstar 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 Morningstar Equity 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.