Correlation Between Dimensional ETF and IShares MSCI

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

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

Diversification Opportunities for Dimensional ETF and IShares MSCI

0.97

Correlation Coefficient

Dimensional ETF  IShares MSCI

Almost no diversification

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

Pair Corralation between Dimensional ETF and IShares MSCI

Given the investment horizon of 90 days Dimensional ETF Trust is expected to generate 0.99 times more return on investment than IShares MSCI. However, Dimensional ETF Trust is 1.01 times less risky than IShares MSCI. It trades about -0.13 of its potential returns per unit of risk. iShares MSCI EAFE is currently generating about -0.16 per unit of risk. If you would invest  2,498  in Dimensional ETF Trust on February 1, 2024 and sell it today you would lose (65.00) from holding Dimensional ETF Trust or give up 2.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Dimensional ETF Trust  vs.  iShares MSCI EAFE

Dimensional ETF Trust

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional ETF Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward indicators, Dimensional ETF is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

iShares MSCI EAFE

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 1 (%) 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 newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dimensional ETF and IShares MSCI

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

The idea behind Dimensional ETF Trust and iShares MSCI EAFE 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .