Correlation Between IShares ESG and Strategy Shares

Can any of the company-specific risk be diversified away by investing in both IShares ESG and Strategy Shares 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 Strategy Shares 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 Strategy Shares Nasdaq, you can compare the effects of market volatilities on IShares ESG and Strategy Shares 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 Strategy Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and Strategy Shares.

Diversification Opportunities for IShares ESG and Strategy Shares

0.99

Correlation Coefficient

IShares ESG  Strategy Shares

No risk reduction

The 3 months correlation between IShares and Strategy is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and Strategy Shares Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategy Shares Nasdaq 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 Strategy Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategy Shares Nasdaq has no effect on the direction of IShares ESG i.e., IShares ESG and Strategy Shares go up and down completely randomly.

Pair Corralation between IShares ESG and Strategy Shares

Given the investment horizon of 90 days IShares ESG is expected to generate 1.47 times less return on investment than Strategy Shares. But when comparing it to its historical volatility, iShares ESG Aware is 1.2 times less risky than Strategy Shares. It trades about 0.24 of its potential returns per unit of risk. Strategy Shares Nasdaq is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  2,105  in Strategy Shares Nasdaq on June 9, 2024 and sell it today you would earn a total of  69.00  from holding Strategy Shares Nasdaq or generate 3.28% return on investment over 90 days.

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

iShares ESG Aware  vs.  Strategy Shares Nasdaq

iShares ESG Aware

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares ESG is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Strategy Shares Nasdaq

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Strategy Shares Nasdaq are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Strategy Shares is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares ESG and Strategy Shares

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

The idea behind iShares ESG Aware and Strategy Shares Nasdaq 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.