Correlation Between IShares Core and Dimensional World

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

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

Diversification Opportunities for IShares Core and Dimensional World

0.89

Correlation Coefficient

IShares Core  Dimensional World

Very poor diversification

The 3 months correlation between IShares and Dimensional is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and Dimensional World ex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional World and IShares 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 iShares Core MSCI are associated (or correlated) with Dimensional World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional World has no effect on the direction of IShares Core i.e., IShares Core and Dimensional World go up and down completely randomly.

Pair Corralation between IShares Core and Dimensional World

Given the investment horizon of 90 days iShares Core MSCI is expected to under-perform the Dimensional World. But the etf apears to be less risky and, when comparing its historical volatility, iShares Core MSCI is 1.01 times less risky than Dimensional World. The etf trades about -0.05 of its potential returns per unit of risk. The Dimensional World ex is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,591  in Dimensional World ex on September 3, 2024 and sell it today you would lose (13.00) from holding Dimensional World ex or give up 0.5% of portfolio value over 90 days.

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

iShares Core MSCI  vs.  Dimensional World ex

iShares Core MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dimensional World

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dimensional World ex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Dimensional World is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Core and Dimensional World

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

The idea behind iShares Core MSCI and Dimensional World ex 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.