Correlation Between Dimensional Core and Vanguard Dividend

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

Diversification Opportunities for Dimensional Core and Vanguard Dividend

0.84

Correlation Coefficient

Dimensional Core  Vanguard Dividend

Very poor diversification

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

Pair Corralation between Dimensional Core and Vanguard Dividend

Given the investment horizon of 90 days Dimensional Core Equity is expected to under-perform the Vanguard Dividend. In addition to that, Dimensional Core is 1.26 times more volatile than Vanguard Dividend Appreciation. It trades about -0.08 of its total potential returns per unit of risk. Vanguard Dividend Appreciation is currently generating about -0.03 per unit of volatility. If you would invest  19,486  in Vanguard Dividend Appreciation on December 30, 2024 and sell it today you would lose (292.00) from holding Vanguard Dividend Appreciation or give up 1.5% of portfolio value over 90 days.

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

Dimensional Core Equity  vs.  Vanguard Dividend Appreciation

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.

Vanguard Dividend

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Dividend Appreciation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Vanguard Dividend is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dimensional Core and Vanguard Dividend

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

The idea behind Dimensional Core Equity and Vanguard Dividend Appreciation 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.