Correlation Between Dimensional Core and Pacer Lunt

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

Diversification Opportunities for Dimensional Core and Pacer Lunt

0.83

Correlation Coefficient

Dimensional Core  Pacer Lunt

Very poor diversification

The 3 months correlation between Dimensional and Pacer is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Pacer Lunt Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Lunt Large 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 Pacer Lunt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Lunt Large has no effect on the direction of Dimensional Core i.e., Dimensional Core and Pacer Lunt go up and down completely randomly.

Pair Corralation between Dimensional Core and Pacer Lunt

Given the investment horizon of 90 days Dimensional Core Equity is expected to under-perform the Pacer Lunt. But the etf apears to be less risky and, when comparing its historical volatility, Dimensional Core Equity is 1.13 times less risky than Pacer Lunt. The etf trades about -0.06 of its potential returns per unit of risk. The Pacer Lunt Large is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  4,968  in Pacer Lunt Large on December 27, 2024 and sell it today you would lose (81.50) from holding Pacer Lunt Large or give up 1.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Dimensional Core Equity  vs.  Pacer Lunt Large

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.

Pacer Lunt Large

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Dimensional Core and Pacer Lunt

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

The idea behind Dimensional Core Equity and Pacer Lunt Large 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .