Correlation Between Dimensional Core and Global X

Can any of the company-specific risk be diversified away by investing in both Dimensional Core and Global X 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 Global X 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 Global X SP, you can compare the effects of market volatilities on Dimensional Core and Global X 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 Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Core and Global X.

Diversification Opportunities for Dimensional Core and Global X

0.79

Correlation Coefficient

Dimensional Core  Global X

Poor diversification

The 3 months correlation between Dimensional and Global is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Global X SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X SP 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 Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X SP has no effect on the direction of Dimensional Core i.e., Dimensional Core and Global X go up and down completely randomly.

Pair Corralation between Dimensional Core and Global X

Given the investment horizon of 90 days Dimensional Core Equity is expected to under-perform the Global X. But the etf apears to be less risky and, when comparing its historical volatility, Dimensional Core Equity is 1.09 times less risky than Global X. The etf trades about -0.08 of its potential returns per unit of risk. The Global X SP is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  7,303  in Global X SP on December 2, 2024 and sell it today you would lose (139.00) from holding Global X SP or give up 1.9% of portfolio value over 90 days.

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

Dimensional Core Equity  vs.  Global X SP

Dimensional Core Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dimensional Core Equity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Dimensional Core is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Global X SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global X SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Global X is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Dimensional Core and Global X

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

The idea behind Dimensional Core Equity and Global X SP 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.