Correlation Between Dimensional Core and IShares Thematic
Can any of the company-specific risk be diversified away by investing in both Dimensional Core and IShares Thematic 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 Thematic 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 Thematic Rotation, you can compare the effects of market volatilities on Dimensional Core and IShares Thematic 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 Thematic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Core and IShares Thematic.
Diversification Opportunities for Dimensional Core and IShares Thematic
0.99 | Correlation Coefficient |
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 Thematic Rotation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Thematic Rotation 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 Thematic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Thematic Rotation has no effect on the direction of Dimensional Core i.e., Dimensional Core and IShares Thematic go up and down completely randomly.
Pair Corralation between Dimensional Core and IShares Thematic
Given the investment horizon of 90 days Dimensional Core is expected to generate 1.35 times less return on investment than IShares Thematic. But when comparing it to its historical volatility, Dimensional Core Equity is 1.13 times less risky than IShares Thematic. It trades about 0.12 of its potential returns per unit of risk. iShares Thematic Rotation is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 2,552 in iShares Thematic Rotation on September 12, 2024 and sell it today you would earn a total of 956.01 from holding iShares Thematic Rotation or generate 37.46% 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 Thematic Rotation
Performance |
| Timeline |
| Dimensional Core Equity |
| iShares Thematic Rotation |
Dimensional Core and IShares Thematic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Core and IShares Thematic
The main advantage of trading using opposite Dimensional Core and IShares Thematic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Core position performs unexpectedly, IShares Thematic 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 Thematic will offset losses from the drop in IShares Thematic's long position.| Dimensional Core vs. Dimensional Targeted Value | Dimensional Core vs. Dimensional World ex | Dimensional Core vs. Dimensional Small Cap | Dimensional Core vs. Dimensional Core Equity |
| IShares Thematic vs. Vanguard SP 500 | IShares Thematic vs. Vanguard Real Estate | IShares Thematic vs. Vanguard Total Bond | IShares Thematic vs. Vanguard High Dividend |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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