Correlation Between Dimensional Core and IShares Equity

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

Diversification Opportunities for Dimensional Core and IShares Equity

1.0

Correlation Coefficient

Dimensional Core  IShares Equity

No risk reduction

The 3 months correlation between Dimensional and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and iShares Equity Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Equity Factor 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 Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Equity Factor has no effect on the direction of Dimensional Core i.e., Dimensional Core and IShares Equity go up and down completely randomly.

Pair Corralation between Dimensional Core and IShares Equity

Given the investment horizon of 90 days Dimensional Core is expected to generate 1.08 times less return on investment than IShares Equity. In addition to that, Dimensional Core is 1.06 times more volatile than iShares Equity Factor. It trades about 0.18 of its total potential returns per unit of risk. iShares Equity Factor is currently generating about 0.21 per unit of volatility. If you would invest  5,729  in iShares Equity Factor on September 13, 2024 and sell it today you would earn a total of  540.00  from holding iShares Equity Factor or generate 9.43% return on investment over 90 days.

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

Dimensional Core Equity  vs.  iShares Equity Factor

Dimensional Core Equity

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Dimensional Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Equity Factor

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Equity Factor are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, IShares Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dimensional Core and IShares Equity

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

The idea behind Dimensional Core Equity and iShares Equity Factor 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.