Correlation Between Dimensional Core and IShares Russell

Can any of the company-specific risk be diversified away by investing in both Dimensional Core and IShares Russell 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 Russell 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 Russell 1000, you can compare the effects of market volatilities on Dimensional Core and IShares Russell 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 Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Core and IShares Russell.

Diversification Opportunities for Dimensional Core and IShares Russell

1.0

Correlation Coefficient

Dimensional Core  IShares Russell

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 Russell 1000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 1000 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 Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 1000 has no effect on the direction of Dimensional Core i.e., Dimensional Core and IShares Russell go up and down completely randomly.

Pair Corralation between Dimensional Core and IShares Russell

Given the investment horizon of 90 days Dimensional Core Equity is expected to generate 0.94 times more return on investment than IShares Russell. However, Dimensional Core Equity is 1.06 times less risky than IShares Russell. It trades about -0.08 of its potential returns per unit of risk. iShares Russell 1000 is currently generating about -0.08 per unit of risk. If you would invest  3,456  in Dimensional Core Equity on December 30, 2024 and sell it today you would lose (176.00) from holding Dimensional Core Equity or give up 5.09% of portfolio value 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 Russell 1000

Dimensional Core Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dimensional Core Equity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Dimensional Core is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Russell 1000

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Russell 1000 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Russell is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dimensional Core and IShares Russell

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

The idea behind Dimensional Core Equity and iShares Russell 1000 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.