Correlation Between IShares ESG and Dimensional Small

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

By analyzing existing cross correlation between iShares ESG USD and Dimensional Small Cap, you can compare the effects of market volatilities on IShares ESG and Dimensional Small 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 Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and Dimensional Small.

Diversification Opportunities for IShares ESG and Dimensional Small

-0.43

Correlation Coefficient

IShares ESG  Dimensional Small

Very good diversification

The 3 months correlation between IShares and Dimensional is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG USD and Dimensional Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Small Cap 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 USD are associated (or correlated) with Dimensional Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Small Cap has no effect on the direction of IShares ESG i.e., IShares ESG and Dimensional Small go up and down completely randomly.

Pair Corralation between IShares ESG and Dimensional Small

Given the investment horizon of 90 days iShares ESG USD is expected to under-perform the Dimensional Small. But the etf apears to be less risky and, when comparing its historical volatility, iShares ESG USD is 3.24 times less risky than Dimensional Small. The etf trades about -0.04 of its potential returns per unit of risk. The Dimensional Small Cap is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  6,152  in Dimensional Small Cap on September 12, 2024 and sell it today you would earn a total of  821.00  from holding Dimensional Small Cap or generate 13.35% return on investment over 90 days.

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

iShares ESG USD  vs.  Dimensional Small Cap

iShares ESG USD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares ESG USD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares ESG is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Dimensional Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Small Cap are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Dimensional Small unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares ESG and Dimensional Small

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

The idea behind iShares ESG USD and Dimensional Small Cap 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.