Correlation Between Dimensional Core and IShares ESG

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

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

Diversification Opportunities for Dimensional Core and IShares ESG

0.84

Correlation Coefficient

Dimensional Core  IShares ESG

Very poor diversification

The 3 months correlation between Dimensional and IShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and iShares ESG MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG MSCI and Dimensional Core 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 Dimensional Core 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 MSCI has no effect on the direction of Dimensional Core i.e., Dimensional Core and IShares ESG go up and down completely randomly.

Pair Corralation between Dimensional Core and IShares ESG

Given the investment horizon of 90 days Dimensional Core Equity is expected to generate 1.28 times more return on investment than IShares ESG. However, Dimensional Core is 1.28 times more volatile than iShares ESG MSCI. It trades about 0.05 of its potential returns per unit of risk. iShares ESG MSCI is currently generating about -0.04 per unit of risk. If you would invest  3,405  in Dimensional Core Equity on September 23, 2024 and sell it today you would earn a total of  77.00  from holding Dimensional Core Equity or generate 2.26% return on investment over 90 days.

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

Dimensional Core Equity  vs.  iShares ESG MSCI

Dimensional Core Equity

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Dimensional Core is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares ESG MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares ESG MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable primary indicators, IShares ESG is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Dimensional Core and IShares ESG

The main advantage of trading using opposite Dimensional Core and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Core 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 Dimensional Core Equity and iShares ESG MSCI 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.