Correlation Between Dimensional Core and FlexShares STOXX

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

Diversification Opportunities for Dimensional Core and FlexShares STOXX

0.84

Correlation Coefficient

Dimensional Core  FlexShares STOXX

Very poor diversification

The 3 months correlation between Dimensional and FlexShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and FlexShares STOXX ESG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares STOXX ESG 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 FlexShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares STOXX ESG has no effect on the direction of Dimensional Core i.e., Dimensional Core and FlexShares STOXX go up and down completely randomly.

Pair Corralation between Dimensional Core and FlexShares STOXX

Given the investment horizon of 90 days Dimensional Core Equity is expected to generate 1.03 times more return on investment than FlexShares STOXX. However, Dimensional Core is 1.03 times more volatile than FlexShares STOXX ESG. It trades about 0.15 of its potential returns per unit of risk. FlexShares STOXX ESG is currently generating about 0.08 per unit of risk. If you would invest  3,533  in Dimensional Core Equity on October 27, 2024 and sell it today you would earn a total of  77.00  from holding Dimensional Core Equity or generate 2.18% return on investment over 90 days.

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

Dimensional Core Equity  vs.  FlexShares STOXX ESG

Dimensional Core Equity

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 6 (%) 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.

FlexShares STOXX ESG

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares STOXX ESG are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, FlexShares STOXX is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dimensional Core and FlexShares STOXX

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

The idea behind Dimensional Core Equity and FlexShares STOXX ESG 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.