Correlation Between IShares MSCI and Dimensional ETF

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

Diversification Opportunities for IShares MSCI and Dimensional ETF

0.97

Correlation Coefficient

IShares MSCI  Dimensional ETF

Almost no diversification

The 3 months correlation between IShares and Dimensional is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and Dimensional ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional ETF Trust 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 ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional ETF Trust has no effect on the direction of IShares MSCI i.e., IShares MSCI and Dimensional ETF go up and down completely randomly.

Pair Corralation between IShares MSCI and Dimensional ETF

Considering the 90-day investment horizon IShares MSCI is expected to generate 1.9 times less return on investment than Dimensional ETF. But when comparing it to its historical volatility, iShares MSCI EAFE is 1.03 times less risky than Dimensional ETF. It trades about 0.11 of its potential returns per unit of risk. Dimensional ETF Trust is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,652  in Dimensional ETF Trust on December 30, 2024 and sell it today you would earn a total of  299.00  from holding Dimensional ETF Trust or generate 11.27% 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 ETF Trust

iShares MSCI EAFE

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Dimensional ETF Trust

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional ETF Trust are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Dimensional ETF may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares MSCI and Dimensional ETF

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

The idea behind iShares MSCI EAFE and Dimensional ETF Trust 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.

Check out your portfolio center.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.