Correlation Between Dimensional Core and IShares SP

Can any of the company-specific risk be diversified away by investing in both Dimensional Core and IShares SP 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 SP 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 SP 100, you can compare the effects of market volatilities on Dimensional Core and IShares SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Core and IShares SP.

Diversification Opportunities for Dimensional Core and IShares SP

0.9

Correlation Coefficient

Dimensional Core  IShares SP

Almost no diversification

The 3 months correlation between Dimensional and IShares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and iShares SP 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP 100 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP 100 has no effect on the direction of Dimensional Core i.e., Dimensional Core and IShares SP go up and down completely randomly.

Pair Corralation between Dimensional Core and IShares SP

Given the investment horizon of 90 days Dimensional Core is expected to generate 1.46 times less return on investment than IShares SP. But when comparing it to its historical volatility, Dimensional Core Equity is 1.01 times less risky than IShares SP. It trades about 0.1 of its potential returns per unit of risk. iShares SP 100 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  16,576  in iShares SP 100 on September 24, 2024 and sell it today you would earn a total of  12,803  from holding iShares SP 100 or generate 77.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.8%
Values	Daily Returns

Dimensional Core Equity  vs.  iShares SP 100

Dimensional Core Equity

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 SP 100

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 100 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, IShares SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dimensional Core and IShares SP

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

The idea behind Dimensional Core Equity and iShares SP 100 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.