Correlation Between Schwab International and IShares ESG

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

By analyzing existing cross correlation between Schwab International Equity and iShares ESG Aware, you can compare the effects of market volatilities on Schwab International 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 Schwab International with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab International and IShares ESG.

Diversification Opportunities for Schwab International and IShares ESG

0.8

Correlation Coefficient

Schwab International  IShares ESG

Very poor diversification

The 3 months correlation between Schwab and IShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Schwab International Equity and iShares ESG Aware in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Aware and Schwab International 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 Schwab International 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 Aware has no effect on the direction of Schwab International i.e., Schwab International and IShares ESG go up and down completely randomly.

Pair Corralation between Schwab International and IShares ESG

Given the investment horizon of 90 days Schwab International Equity is expected to under-perform the IShares ESG. But the etf apears to be less risky and, when comparing its historical volatility, Schwab International Equity is 1.35 times less risky than IShares ESG. The etf trades about -0.02 of its potential returns per unit of risk. The iShares ESG Aware is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,239  in iShares ESG Aware on February 5, 2024 and sell it today you would earn a total of  94.00  from holding iShares ESG Aware or generate 2.9% return on investment over 90 days.

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

Schwab International Equity  vs.  iShares ESG Aware

Schwab International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab International Equity are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Schwab International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 rather uncertain technical and fundamental indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Schwab International and IShares ESG

The main advantage of trading using opposite Schwab International and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab International 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 Schwab International Equity and iShares ESG Aware 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.