Correlation Between Dimensional Emerging and IShares Currency
Can any of the company-specific risk be diversified away by investing in both Dimensional Emerging and IShares Currency 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 Emerging and IShares Currency into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional Emerging Core and iShares Currency Hedged, you can compare the effects of market volatilities on Dimensional Emerging and IShares Currency 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 Emerging with a short position of IShares Currency. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Emerging and IShares Currency.
Diversification Opportunities for Dimensional Emerging and IShares Currency
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dimensional and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Emerging Core and iShares Currency Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Currency Hedged and Dimensional Emerging 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 Emerging Core are associated (or correlated) with IShares Currency. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Currency Hedged has no effect on the direction of Dimensional Emerging i.e., Dimensional Emerging and IShares Currency go up and down completely randomly.
Pair Corralation between Dimensional Emerging and IShares Currency
Given the investment horizon of 90 days Dimensional Emerging Core is expected to under-perform the IShares Currency. In addition to that, Dimensional Emerging is 1.66 times more volatile than iShares Currency Hedged. It trades about -0.19 of its total potential returns per unit of risk. iShares Currency Hedged is currently generating about -0.09 per unit of volatility. If you would invest 3,309 in iShares Currency Hedged on August 28, 2024 and sell it today you would lose (41.00) from holding iShares Currency Hedged or give up 1.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional Emerging Core vs. iShares Currency Hedged
Performance |
| Timeline |
| Dimensional Emerging Core |
| iShares Currency Hedged |
Dimensional Emerging and IShares Currency Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Emerging and IShares Currency
The main advantage of trading using opposite Dimensional Emerging and IShares Currency positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Emerging position performs unexpectedly, IShares Currency 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 Currency will offset losses from the drop in IShares Currency's long position.The idea behind Dimensional Emerging Core and iShares Currency Hedged 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.
| IShares Currency vs. Dimensional Core Equity | IShares Currency vs. Dimensional Emerging Core | IShares Currency vs. Dimensional Targeted Value | IShares Currency vs. Dimensional Small Cap |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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