Correlation Between Dimensional Core and WisdomTree Quality

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

Diversification Opportunities for Dimensional Core and WisdomTree Quality

0.92

Correlation Coefficient

Dimensional Core  WisdomTree Quality

Almost no diversification

The 3 months correlation between Dimensional and WisdomTree is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and WisdomTree Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Quality 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 WisdomTree Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Quality has no effect on the direction of Dimensional Core i.e., Dimensional Core and WisdomTree Quality go up and down completely randomly.

Pair Corralation between Dimensional Core and WisdomTree Quality

Given the investment horizon of 90 days Dimensional Core Equity is expected to generate 1.22 times more return on investment than WisdomTree Quality. However, Dimensional Core is 1.22 times more volatile than WisdomTree Quality Dividend. It trades about 0.12 of its potential returns per unit of risk. WisdomTree Quality Dividend is currently generating about 0.05 per unit of risk. If you would invest  3,353  in Dimensional Core Equity on September 18, 2024 and sell it today you would earn a total of  200.00  from holding Dimensional Core Equity or generate 5.96% 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.  WisdomTree Quality Dividend

Dimensional Core Equity

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 9 (%) 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.

WisdomTree Quality

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Quality Dividend are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, WisdomTree Quality is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Dimensional Core and WisdomTree Quality

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

The idea behind Dimensional Core Equity and WisdomTree Quality Dividend 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.