Correlation Between Dimensional Core and Dimensional International

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

Diversification Opportunities for Dimensional Core and Dimensional International

0.15

Correlation Coefficient

Dimensional Core  Dimensional International

Average diversification

The 3 months correlation between Dimensional and Dimensional is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Dimensional International Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional International 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 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 Dimensional Core i.e., Dimensional Core and Dimensional International go up and down completely randomly.

Pair Corralation between Dimensional Core and Dimensional International

Given the investment horizon of 90 days Dimensional Core Equity is expected to generate 1.5 times more return on investment than Dimensional International. However, Dimensional Core is 1.5 times more volatile than Dimensional International Core. It trades about 0.19 of its potential returns per unit of risk. Dimensional International Core is currently generating about 0.19 per unit of risk. If you would invest  3,446  in Dimensional Core Equity on October 20, 2024 and sell it today you would earn a total of  101.00  from holding Dimensional Core Equity or generate 2.93% return on investment over 90 days.

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

Dimensional Core Equity  vs.  Dimensional International Core

Dimensional Core Equity

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Dimensional International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dimensional Core and Dimensional International

The main advantage of trading using opposite Dimensional Core and Dimensional International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Core 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 Dimensional Core Equity and Dimensional International Core 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.