Correlation Between Dimensional Core and Dimensional Equity

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

Diversification Opportunities for Dimensional Core and Dimensional Equity

1.0

Correlation Coefficient

Dimensional Core  Dimensional Equity

No risk reduction

The 3 months correlation between Dimensional and Dimensional is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Dimensional Equity ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Equity ETF 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 Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Equity ETF has no effect on the direction of Dimensional Core i.e., Dimensional Core and Dimensional Equity go up and down completely randomly.

Pair Corralation between Dimensional Core and Dimensional Equity

Given the investment horizon of 90 days Dimensional Core is expected to generate 1.01 times less return on investment than Dimensional Equity. In addition to that, Dimensional Core is 1.01 times more volatile than Dimensional Equity ETF. It trades about 0.21 of its total potential returns per unit of risk. Dimensional Equity ETF is currently generating about 0.21 per unit of volatility. If you would invest  5,955  in Dimensional Equity ETF on September 3, 2024 and sell it today you would earn a total of  630.00  from holding Dimensional Equity ETF or generate 10.58% 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.  Dimensional Equity ETF

Dimensional Core Equity

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Dimensional Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dimensional Equity ETF

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Equity ETF are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Dimensional Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dimensional Core and Dimensional Equity

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

The idea behind Dimensional Core Equity and Dimensional Equity ETF 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.