Correlation Between Dimensional Core and Main Sector

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

Diversification Opportunities for Dimensional Core and Main Sector

0.93

Correlation Coefficient

Dimensional Core  Main Sector

Almost no diversification

The 3 months correlation between Dimensional and Main is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Main Sector Rotation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Sector Rotation 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 Main Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Sector Rotation has no effect on the direction of Dimensional Core i.e., Dimensional Core and Main Sector go up and down completely randomly.

Pair Corralation between Dimensional Core and Main Sector

Given the investment horizon of 90 days Dimensional Core Equity is expected to generate 0.77 times more return on investment than Main Sector. However, Dimensional Core Equity is 1.3 times less risky than Main Sector. It trades about -0.12 of its potential returns per unit of risk. Main Sector Rotation is currently generating about -0.1 per unit of risk. If you would invest  3,650  in Dimensional Core Equity on December 4, 2024 and sell it today you would lose (219.00) from holding Dimensional Core Equity or give up 6.0% of portfolio value over 90 days.

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

Dimensional Core Equity  vs.  Main Sector Rotation

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 latest uncertain performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Main Sector Rotation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Main Sector Rotation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with Dimensional Core and Main Sector

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

The idea behind Dimensional Core Equity and Main Sector Rotation 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.