Correlation Between IShares USD and Dimensional Global

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

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

Diversification Opportunities for IShares USD and Dimensional Global

0.9

Correlation Coefficient

IShares USD  Dimensional Global

Almost no diversification

The 3 months correlation between IShares and Dimensional is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares USD Green and Dimensional Global Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Global Core and IShares USD 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 USD Green are associated (or correlated) with Dimensional Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Global Core has no effect on the direction of IShares USD i.e., IShares USD and Dimensional Global go up and down completely randomly.

Pair Corralation between IShares USD and Dimensional Global

Given the investment horizon of 90 days IShares USD is expected to generate 1.78 times less return on investment than Dimensional Global. But when comparing it to its historical volatility, iShares USD Green is 1.09 times less risky than Dimensional Global. It trades about 0.09 of its potential returns per unit of risk. Dimensional Global Core is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,351  in Dimensional Global Core on September 18, 2024 and sell it today you would earn a total of  43.00  from holding Dimensional Global Core or generate 0.8% return on investment over 90 days.

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

iShares USD Green  vs.  Dimensional Global Core

iShares USD Green

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares USD Green has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares USD is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Dimensional Global Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dimensional Global Core has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Dimensional Global 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 USD and Dimensional Global

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

The idea behind iShares USD Green and Dimensional Global Core 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.