Correlation Between Dimensional Core and Vanguard Large

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

Diversification Opportunities for Dimensional Core and Vanguard Large

0.99

Correlation Coefficient

Dimensional Core  Vanguard Large

No risk reduction

The 3 months correlation between Dimensional and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Vanguard Large Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Large Cap 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 Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Large Cap has no effect on the direction of Dimensional Core i.e., Dimensional Core and Vanguard Large go up and down completely randomly.

Pair Corralation between Dimensional Core and Vanguard Large

Given the investment horizon of 90 days Dimensional Core Equity is expected to generate 0.93 times more return on investment than Vanguard Large. However, Dimensional Core Equity is 1.08 times less risky than Vanguard Large. It trades about -0.08 of its potential returns per unit of risk. Vanguard Large Cap Index is currently generating about -0.08 per unit of risk. If you would invest  3,456  in Dimensional Core Equity on December 30, 2024 and sell it today you would lose (176.00) from holding Dimensional Core Equity or give up 5.09% 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.  Vanguard Large Cap Index

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 Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Large Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard Large is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Dimensional Core and Vanguard Large

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

The idea behind Dimensional Core Equity and Vanguard Large Cap Index 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.