Correlation Between Dimensional Core and First Trust

Can any of the company-specific risk be diversified away by investing in both Dimensional Core and First Trust 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 First Trust 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 First Trust NASDAQ 100, you can compare the effects of market volatilities on Dimensional Core and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Core and First Trust.

Diversification Opportunities for Dimensional Core and First Trust

0.98

Correlation Coefficient

Dimensional Core  First Trust

Almost no diversification

The 3 months correlation between Dimensional and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and First Trust NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust NASDAQ has no effect on the direction of Dimensional Core i.e., Dimensional Core and First Trust go up and down completely randomly.

Pair Corralation between Dimensional Core and First Trust

Given the investment horizon of 90 days Dimensional Core Equity is expected to generate 1.15 times more return on investment than First Trust. However, Dimensional Core is 1.15 times more volatile than First Trust NASDAQ 100. It trades about 0.14 of its potential returns per unit of risk. First Trust NASDAQ 100 is currently generating about 0.14 per unit of risk. If you would invest  3,361  in Dimensional Core Equity on September 17, 2024 and sell it today you would earn a total of  228.00  from holding Dimensional Core Equity or generate 6.78% 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.  First Trust NASDAQ 100

Dimensional Core Equity

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Dimensional Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust NASDAQ

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ 100 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Dimensional Core and First Trust

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

The idea behind Dimensional Core Equity and First Trust NASDAQ 100 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.