Correlation Between IShares MSCI and Dimensional International

Can any of the company-specific risk be diversified away by investing in both IShares MSCI 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 MSCI 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 MSCI EAFE and Dimensional International Value, you can compare the effects of market volatilities on IShares MSCI 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 MSCI with a short position of Dimensional International. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Dimensional International.

Diversification Opportunities for IShares MSCI and Dimensional International

1.0

Correlation Coefficient

IShares MSCI  Dimensional International

No risk reduction

The 3 months correlation between IShares and Dimensional is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and Dimensional International Valu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional International and IShares MSCI 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 MSCI EAFE 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 MSCI i.e., IShares MSCI and Dimensional International go up and down completely randomly.

Pair Corralation between IShares MSCI and Dimensional International

Considering the 90-day investment horizon iShares MSCI EAFE is expected to generate 0.95 times more return on investment than Dimensional International. However, iShares MSCI EAFE is 1.06 times less risky than Dimensional International. It trades about 0.25 of its potential returns per unit of risk. Dimensional International Value is currently generating about 0.22 per unit of risk. 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

iShares MSCI EAFE  vs.  Dimensional International Valu

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.

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.

Pair Trading with IShares MSCI and Dimensional International

The main advantage of trading using opposite IShares MSCI and Dimensional International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI 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 MSCI EAFE and Dimensional International Value 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.