Correlation Between Dimensional Core and FlexShares Quality

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

Diversification Opportunities for Dimensional Core and FlexShares Quality

0.75

Correlation Coefficient

Dimensional Core  FlexShares Quality

Poor diversification

The 3 months correlation between Dimensional and FlexShares is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and FlexShares Quality Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality 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 FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality Large has no effect on the direction of Dimensional Core i.e., Dimensional Core and FlexShares Quality go up and down completely randomly.

Pair Corralation between Dimensional Core and FlexShares Quality

Given the investment horizon of 90 days Dimensional Core is expected to generate 1.57 times less return on investment than FlexShares Quality. In addition to that, Dimensional Core is 1.02 times more volatile than FlexShares Quality Large. It trades about 0.04 of its total potential returns per unit of risk. FlexShares Quality Large is currently generating about 0.07 per unit of volatility. If you would invest  6,574  in FlexShares Quality Large on October 20, 2024 and sell it today you would earn a total of  224.70  from holding FlexShares Quality Large or generate 3.42% return on investment over 90 days.

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

Dimensional Core Equity  vs.  FlexShares Quality Large

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.

FlexShares Quality Large

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Large are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, FlexShares Quality 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 FlexShares Quality

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

The idea behind Dimensional Core Equity and FlexShares Quality 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.

Check out your portfolio center.

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.