Correlation Between IShares Core and Dimensional International

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

Diversification Opportunities for IShares Core and Dimensional International

0.99

Correlation Coefficient

IShares Core  Dimensional International

No risk reduction

The 3 months correlation between IShares and Dimensional is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and Dimensional International Sust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional International 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 International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional International has no effect on the direction of IShares Core i.e., IShares Core and Dimensional International go up and down completely randomly.

Pair Corralation between IShares Core and Dimensional International

Given the investment horizon of 90 days iShares Core MSCI is expected to under-perform the Dimensional International. In addition to that, IShares Core is 1.06 times more volatile than Dimensional International Sustainability. It trades about -0.05 of its total potential returns per unit of risk. Dimensional International Sustainability is currently generating about -0.03 per unit of volatility. If you would invest  3,462  in Dimensional International Sustainability on September 3, 2024 and sell it today you would lose (52.00) from holding Dimensional International Sustainability or give up 1.5% of portfolio value over 90 days.

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

iShares Core MSCI  vs.  Dimensional International Sust

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 International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dimensional International Sustainability has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Dimensional International is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Core and Dimensional International

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

The idea behind iShares Core MSCI and Dimensional International Sustainability 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.