Correlation Between Dimensional International and IShares ESG

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

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

Diversification Opportunities for Dimensional International and IShares ESG

0.9

Correlation Coefficient

Dimensional International  IShares ESG

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

Pair Corralation between Dimensional International and IShares ESG

Given the investment horizon of 90 days Dimensional International Core is expected to generate 2.72 times more return on investment than IShares ESG. However, Dimensional International is 2.72 times more volatile than iShares ESG Aggregate. It trades about 0.16 of its potential returns per unit of risk. iShares ESG Aggregate is currently generating about 0.13 per unit of risk. If you would invest  2,909  in Dimensional International Core on December 30, 2024 and sell it today you would earn a total of  241.00  from holding Dimensional International Core or generate 8.28% return on investment over 90 days.

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

Dimensional International Core  vs.  iShares ESG Aggregate

Dimensional International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional International Core are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Dimensional International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares ESG Aggregate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aggregate are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, IShares ESG 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 International and IShares ESG

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

The idea behind Dimensional International Core and iShares ESG Aggregate 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.