Correlation Between Dimensional International and IShares MSCI

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

By analyzing existing cross correlation between Dimensional International Value and iShares MSCI EAFE, you can compare the effects of market volatilities on Dimensional International and IShares MSCI 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 MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional International and IShares MSCI.

Diversification Opportunities for Dimensional International and IShares MSCI

1.0

Correlation Coefficient

Dimensional International  IShares MSCI

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

Pair Corralation between Dimensional International and IShares MSCI

Given the investment horizon of 90 days Dimensional International is expected to generate 1.08 times less return on investment than IShares MSCI. In addition to that, Dimensional International is 1.06 times more volatile than iShares MSCI EAFE. It trades about 0.22 of its total potential returns per unit of risk. iShares MSCI EAFE is currently generating about 0.25 per unit of volatility. If you would invest  5,239  in iShares MSCI EAFE on December 30, 2024 and sell it today you would earn a total of  708.00  from holding iShares MSCI EAFE or generate 13.51% 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 Valu  vs.  iShares MSCI EAFE

Dimensional International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional International Value are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward indicators, Dimensional International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares MSCI EAFE

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, IShares MSCI showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dimensional International and IShares MSCI

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

The idea behind Dimensional International Value and iShares MSCI EAFE 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.