Correlation Between Dimensional Core and Vulcan Value

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

Diversification Opportunities for Dimensional Core and Vulcan Value

0.76

Correlation Coefficient

Dimensional Core  Vulcan Value

Poor diversification

The 3 months correlation between Dimensional and Vulcan is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Vulcan Value Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Value Partners 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 Vulcan Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Value Partners has no effect on the direction of Dimensional Core i.e., Dimensional Core and Vulcan Value go up and down completely randomly.

Pair Corralation between Dimensional Core and Vulcan Value

Given the investment horizon of 90 days Dimensional Core Equity is expected to under-perform the Vulcan Value. In addition to that, Dimensional Core is 1.03 times more volatile than Vulcan Value Partners. It trades about -0.05 of its total potential returns per unit of risk. Vulcan Value Partners is currently generating about 0.0 per unit of volatility. If you would invest  2,784  in Vulcan Value Partners on December 28, 2024 and sell it today you would lose (6.00) from holding Vulcan Value Partners or give up 0.22% of portfolio value over 90 days.

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

Dimensional Core Equity  vs.  Vulcan Value Partners

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.

Vulcan Value Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vulcan Value Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Vulcan Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dimensional Core and Vulcan Value

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

The idea behind Dimensional Core Equity and Vulcan Value Partners 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.