Correlation Between Dimensional Targeted and Vanguard

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

By analyzing existing cross correlation between Dimensional Targeted Value and Vanguard SP Small Cap, you can compare the effects of market volatilities on Dimensional Targeted and Vanguard 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 Targeted with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Targeted and Vanguard.

Diversification Opportunities for Dimensional Targeted and Vanguard

0.96

Correlation Coefficient

Dimensional Targeted  Vanguard

Almost no diversification

The 3 months correlation between Dimensional and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Targeted Value and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small and Dimensional Targeted 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 Targeted Value are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Small has no effect on the direction of Dimensional Targeted i.e., Dimensional Targeted and Vanguard go up and down completely randomly.

Pair Corralation between Dimensional Targeted and Vanguard

Given the investment horizon of 90 days Dimensional Targeted Value is expected to generate 0.92 times more return on investment than Vanguard. However, Dimensional Targeted Value is 1.09 times less risky than Vanguard. It trades about -0.02 of its potential returns per unit of risk. Vanguard SP Small Cap is currently generating about -0.03 per unit of risk. If you would invest  5,780  in Dimensional Targeted Value on November 19, 2024 and sell it today you would lose (83.00) from holding Dimensional Targeted Value or give up 1.44% of portfolio value over 90 days.

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

Dimensional Targeted Value  vs.  Vanguard SP Small Cap

Dimensional Targeted

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dimensional Targeted Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Dimensional Targeted is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard SP Small

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Dimensional Targeted and Vanguard

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

The idea behind Dimensional Targeted Value and Vanguard SP Small Cap 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.