Correlation Between IShares TIPS and Dimensional ETF

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

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

Diversification Opportunities for IShares TIPS and Dimensional ETF

1.0

Correlation Coefficient

IShares TIPS  Dimensional ETF

No risk reduction

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

Pair Corralation between IShares TIPS and Dimensional ETF

Considering the 90-day investment horizon iShares TIPS Bond is expected to generate 0.93 times more return on investment than Dimensional ETF. However, iShares TIPS Bond is 1.07 times less risky than Dimensional ETF. It trades about -0.02 of its potential returns per unit of risk. Dimensional ETF Trust is currently generating about -0.03 per unit of risk. If you would invest  10,902  in iShares TIPS Bond on September 5, 2024 and sell it today you would lose (46.00) from holding iShares TIPS Bond or give up 0.42% of portfolio value over 90 days.

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

iShares TIPS Bond  vs.  Dimensional ETF Trust

iShares TIPS Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares TIPS Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, IShares TIPS is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Dimensional ETF Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dimensional ETF Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Dimensional ETF is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares TIPS and Dimensional ETF

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

The idea behind iShares TIPS Bond and Dimensional ETF Trust 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.