Correlation Between Dimensional Emerging and Global X

Can any of the company-specific risk be diversified away by investing in both Dimensional Emerging and Global X 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 Emerging and Global X into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dimensional Emerging Core and Global X MSCI, you can compare the effects of market volatilities on Dimensional Emerging and Global X 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 Emerging with a short position of Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Emerging and Global X.

Diversification Opportunities for Dimensional Emerging and Global X

0.63

Correlation Coefficient

Dimensional Emerging  Global X

Poor diversification

The 3 months correlation between Dimensional and Global is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Emerging Core and Global X MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X MSCI and Dimensional Emerging 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 Emerging Core are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X MSCI has no effect on the direction of Dimensional Emerging i.e., Dimensional Emerging and Global X go up and down completely randomly.

Pair Corralation between Dimensional Emerging and Global X

Given the investment horizon of 90 days Dimensional Emerging Core is expected to under-perform the Global X. In addition to that, Dimensional Emerging is 1.17 times more volatile than Global X MSCI. It trades about -0.03 of its total potential returns per unit of risk. Global X MSCI is currently generating about 0.13 per unit of volatility. If you would invest  1,443  in Global X MSCI on December 5, 2024 and sell it today you would earn a total of  85.00  from holding Global X MSCI or generate 5.89% return on investment over 90 days.

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

Dimensional Emerging Core  vs.  Global X MSCI

Dimensional Emerging Core

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dimensional Emerging Core has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Dimensional Emerging is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Global X MSCI

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global X MSCI are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Global X is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Dimensional Emerging and Global X

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

The idea behind Dimensional Emerging Core and Global X MSCI 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.