# Timeline for ESG score for shorted stocks and for long-short portfolio

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Nov 25 '18 at 17:15 answer timeline score: 1
Nov 25 '18 at 17:09 history edited
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Nov 25 '18 at 17:02 comment But I guess your point is correct in that is that the effect of the shorting the bad stock is indeed in the right direction compared to the mean. Indeed this can be clearly seen by defining the scores to be be wrt to the mean score 5 i.e. scores get shifted by -5. But the effect does not depend on the origin chosen as it is a linear problem.
Nov 25 '18 at 16:52 comment It shouldn't according to me but this is what the standard scores (MSCI, MorningStar etc) use. While it is true that the overall score is increasing in my example the fact that the contribution of the bad stock is to decrease the store is counterintuitive and doesn't make sense. Interestingly if the scores are shifted by -5 then this problem is not there.
Nov 25 '18 at 16:47 comment Why does your bad stock have a positive score? ;) in any case, shorting stocks with lower scores and using the proceeds for buying stocks with higher scores increases the overall score.
Nov 25 '18 at 16:31 history edited
Nov 25 '18 at 16:24 comment I tried that (and this is what is MSCI says it does msci.com/esg-ratings) but I am getting some meaningless results. For instance suppose I have a good stock A with a score $s_A=10$ and a bad one B with a score $s_B=2$. If I go long A and short B with (say) weights $w_A=2$ and $w_B=-1$ then the score is $2 s_A - 1 s_B$. Note that the score of shorting B reduces the portfolio score instead of increasing it contrary to what one would have expected by shorting a bad stock.