Correlation Between IShares ESG and Dimensional International

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

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

Diversification Opportunities for IShares ESG and Dimensional International

0.72

Correlation Coefficient

IShares ESG  Dimensional International

Poor diversification

The 3 months correlation between IShares and Dimensional is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aggregate and Dimensional International Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional International and IShares ESG 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 ESG Aggregate are associated (or correlated) with Dimensional International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional International has no effect on the direction of IShares ESG i.e., IShares ESG and Dimensional International go up and down completely randomly.

Pair Corralation between IShares ESG and Dimensional International

Given the investment horizon of 90 days iShares ESG Aggregate is expected to generate 0.45 times more return on investment than Dimensional International. However, iShares ESG Aggregate is 2.23 times less risky than Dimensional International. It trades about 0.29 of its potential returns per unit of risk. Dimensional International Core is currently generating about 0.09 per unit of risk. If you would invest  4,663  in iShares ESG Aggregate on December 1, 2024 and sell it today you would earn a total of  95.00  from holding iShares ESG Aggregate or generate 2.04% return on investment over 90 days.

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

iShares ESG Aggregate  vs.  Dimensional International Core

iShares ESG Aggregate

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aggregate are ranked lower than 4 (%) 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.

Dimensional International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional International Core are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Dimensional International is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares ESG and Dimensional International

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

The idea behind iShares ESG Aggregate and Dimensional International 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.