Correlation Between Dimensional Core and IShares Dow

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

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

Diversification Opportunities for Dimensional Core and IShares Dow

0.99

Correlation Coefficient

Dimensional Core  IShares Dow

No risk reduction

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

Pair Corralation between Dimensional Core and IShares Dow

Given the investment horizon of 90 days Dimensional Core is expected to generate 1.32 times less return on investment than IShares Dow. But when comparing it to its historical volatility, Dimensional Core Equity is 1.0 times less risky than IShares Dow. It trades about 0.07 of its potential returns per unit of risk. iShares Dow Jones is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  12,509  in iShares Dow Jones on March 14, 2024 and sell it today you would earn a total of  503.00  from holding iShares Dow Jones or generate 4.02% return on investment over 90 days.

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

Dimensional Core Equity  vs.  iShares Dow Jones

Dimensional Core Equity

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Dimensional Core is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Dow Jones

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Dow Jones are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, IShares Dow is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dimensional Core and IShares Dow

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

The idea behind Dimensional Core Equity and iShares Dow Jones 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.