Can any of the company-specific risk be diversified away by investing in both Vanguard Russell 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 Vanguard Russell and IShares ESG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Russell 2000 and iShares ESG Aware, you can compare the effects of market volatilities on Vanguard Russell 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 Vanguard Russell with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Russell and IShares ESG.
Diversification Opportunities for Vanguard Russell and IShares ESG
The 3 months correlation between Vanguard and IShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Russell 2000 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 Vanguard Russell 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 Vanguard Russell 2000 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 Vanguard Russell i.e., Vanguard Russell and IShares ESG go up and down completely randomly.
Pair Corralation between Vanguard Russell and IShares ESG
Given the investment horizon of 90 days Vanguard Russell is expected to generate 1.07 times less return on investment than IShares ESG. In addition to that, Vanguard Russell is 1.05 times more volatile than iShares ESG Aware. It trades about 0.04 of its total potential returns per unit of risk. iShares ESG Aware is currently generating about 0.04 per unit of volatility. If you would invest 3,109 in iShares ESG Aware on March 6, 2024 and sell it today you would earn a total of 788.00 from holding iShares ESG Aware or generate 25.35% return on investment over 90 days.
Over the last 90 days Vanguard Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard Russell is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Over the last 90 days iShares ESG Aware has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, IShares ESG is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.