Correlation Between IShares Trust and Dimensional Equity

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

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

Diversification Opportunities for IShares Trust and Dimensional Equity

0.8

Correlation Coefficient

IShares Trust  Dimensional Equity

Very poor diversification

The 3 months correlation between IShares and Dimensional is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Dimensional Equity ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Equity ETF and IShares Trust 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 Trust are associated (or correlated) with Dimensional Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Equity ETF has no effect on the direction of IShares Trust i.e., IShares Trust and Dimensional Equity go up and down completely randomly.

Pair Corralation between IShares Trust and Dimensional Equity

Given the investment horizon of 90 days IShares Trust is expected to generate 2.2 times less return on investment than Dimensional Equity. But when comparing it to its historical volatility, iShares Trust is 1.5 times less risky than Dimensional Equity. It trades about 0.15 of its potential returns per unit of risk. Dimensional Equity ETF is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  5,945  in Dimensional Equity ETF on September 4, 2024 and sell it today you would earn a total of  658.00  from holding Dimensional Equity ETF or generate 11.07% return on investment over 90 days.

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

iShares Trust  vs.  Dimensional Equity ETF

iShares Trust

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, IShares Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Dimensional Equity ETF

Risk-Adjusted Performance

17 of 100

Solid

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

Pair Trading with IShares Trust and Dimensional Equity

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

The idea behind iShares Trust and Dimensional Equity ETF 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.