Correlation Between IShares Oil and IShares ESG

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

Diversification Opportunities for IShares Oil and IShares ESG

-0.5

Correlation Coefficient

IShares Oil  IShares ESG

Very good diversification

The 3 months correlation between IShares and IShares is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding iShares Oil Gas and iShares ESG Aggregate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Aggregate and IShares Oil 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 Oil Gas 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 Aggregate has no effect on the direction of IShares Oil i.e., IShares Oil and IShares ESG go up and down completely randomly.

Pair Corralation between IShares Oil and IShares ESG

Considering the 90-day investment horizon iShares Oil Gas is expected to under-perform the IShares ESG. In addition to that, IShares Oil is 2.87 times more volatile than iShares ESG Aggregate. It trades about -0.28 of its total potential returns per unit of risk. iShares ESG Aggregate is currently generating about -0.11 per unit of volatility. If you would invest  4,641  in iShares ESG Aggregate on February 3, 2024 and sell it today you would lose (45.00) from holding iShares ESG Aggregate or give up 0.97% of portfolio value over 90 days.

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

iShares Oil Gas  vs.  iShares ESG Aggregate

iShares Oil Gas

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Oil Gas are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, IShares Oil displayed solid returns over the last few months and may actually be approaching a breakup point.

iShares ESG Aggregate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares ESG Aggregate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IShares ESG is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Oil and IShares ESG

The main advantage of trading using opposite IShares Oil and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Oil 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 Oil Gas and iShares ESG Aggregate 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.