Correlation Between Dimensional International and Dimensional Core

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

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

Diversification Opportunities for Dimensional International and Dimensional Core

-0.51

Correlation Coefficient

Dimensional International  Dimensional Core

Excellent diversification

The 3 months correlation between Dimensional and Dimensional is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional International Core and Dimensional Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Core Equity and Dimensional International 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 International Core are associated (or correlated) with Dimensional Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Core Equity has no effect on the direction of Dimensional International i.e., Dimensional International and Dimensional Core go up and down completely randomly.

Pair Corralation between Dimensional International and Dimensional Core

Given the investment horizon of 90 days Dimensional International Core is expected to under-perform the Dimensional Core. In addition to that, Dimensional International is 1.06 times more volatile than Dimensional Core Equity. It trades about -0.03 of its total potential returns per unit of risk. Dimensional Core Equity is currently generating about 0.22 per unit of volatility. If you would invest  3,803  in Dimensional Core Equity on September 2, 2024 and sell it today you would earn a total of  402.00  from holding Dimensional Core Equity or generate 10.57% return on investment over 90 days.

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

Dimensional International Core  vs.  Dimensional Core Equity

Dimensional International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dimensional International Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Dimensional International is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Dimensional Core Equity

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Dimensional Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dimensional International and Dimensional Core

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

The idea behind Dimensional International Core and Dimensional Core Equity 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.