Correlation Between IShares Core and Dimensional World

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

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

Diversification Opportunities for IShares Core and Dimensional World

0.99

Correlation Coefficient

IShares Core  Dimensional World

No risk reduction

The 3 months correlation between IShares and Dimensional is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and Dimensional World ex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional World and IShares 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 iShares Core MSCI are associated (or correlated) with Dimensional World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional World has no effect on the direction of IShares Core i.e., IShares Core and Dimensional World go up and down completely randomly.

Pair Corralation between IShares Core and Dimensional World

Given the investment horizon of 90 days iShares Core MSCI is expected to generate 1.11 times more return on investment than Dimensional World. However, IShares Core is 1.11 times more volatile than Dimensional World ex. It trades about 0.16 of its potential returns per unit of risk. Dimensional World ex is currently generating about 0.13 per unit of risk. If you would invest  7,032  in iShares Core MSCI on December 30, 2024 and sell it today you would earn a total of  608.00  from holding iShares Core MSCI or generate 8.65% return on investment over 90 days.

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

iShares Core MSCI  vs.  Dimensional World ex

iShares Core MSCI

Risk-Adjusted Performance

Good

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

Dimensional World

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional World ex are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Dimensional World may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares Core and Dimensional World

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

The idea behind iShares Core MSCI and Dimensional World ex 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.