Correlation Between Dimensional 2040 and World Ex

Can any of the company-specific risk be diversified away by investing in both Dimensional 2040 and World Ex 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 2040 and World Ex into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dimensional 2040 Target and World Ex Core, you can compare the effects of market volatilities on Dimensional 2040 and World Ex 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 2040 with a short position of World Ex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional 2040 and World Ex.

Diversification Opportunities for Dimensional 2040 and World Ex

0.24

Correlation Coefficient

Dimensional 2040  World Ex

Modest diversification

The 3 months correlation between Dimensional and World is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional 2040 Target and World Ex Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Ex Core and Dimensional 2040 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 2040 Target are associated (or correlated) with World Ex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Ex Core has no effect on the direction of Dimensional 2040 i.e., Dimensional 2040 and World Ex go up and down completely randomly.

Pair Corralation between Dimensional 2040 and World Ex

Assuming the 90 days horizon Dimensional 2040 is expected to generate 151.5 times less return on investment than World Ex. But when comparing it to its historical volatility, Dimensional 2040 Target is 1.25 times less risky than World Ex. It trades about 0.0 of its potential returns per unit of risk. World Ex Core is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,306  in World Ex Core on December 21, 2024 and sell it today you would earn a total of  96.00  from holding World Ex Core or generate 7.35% return on investment over 90 days.

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

Dimensional 2040 Target  vs.  World Ex Core

Dimensional 2040 Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dimensional 2040 Target has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical indicators, Dimensional 2040 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

World Ex Core

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in World Ex Core are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, World Ex may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Dimensional 2040 and World Ex

The main advantage of trading using opposite Dimensional 2040 and World Ex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional 2040 position performs unexpectedly, World Ex 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 World Ex will offset losses from the drop in World Ex's long position.

The idea behind Dimensional 2040 Target and World Ex Core 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.