Correlation Between IShares International and Dimensional International

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

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

Diversification Opportunities for IShares International and Dimensional International

0.78

Correlation Coefficient

IShares International  Dimensional International

Poor diversification

The 3 months correlation between IShares and Dimensional is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding iShares International Select and Dimensional International Valu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional International and IShares International 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 International Select are associated (or correlated) with Dimensional International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional International has no effect on the direction of IShares International i.e., IShares International and Dimensional International go up and down completely randomly.

Pair Corralation between IShares International and Dimensional International

Considering the 90-day investment horizon IShares International is expected to generate 2.15 times less return on investment than Dimensional International. But when comparing it to its historical volatility, iShares International Select is 1.01 times less risky than Dimensional International. It trades about 0.03 of its potential returns per unit of risk. Dimensional International Value is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,833  in Dimensional International Value on January 31, 2024 and sell it today you would earn a total of  842.00  from holding Dimensional International Value or generate 29.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

iShares International Select  vs.  Dimensional International Valu

iShares International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares International Select are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, IShares International is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Dimensional International

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional International Value are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward indicators, Dimensional International may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with IShares International and Dimensional International

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

The idea behind iShares International Select and Dimensional International Value 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.