Correlation Between Dimensional 2040 and Dimensional 2020

Can any of the company-specific risk be diversified away by investing in both Dimensional 2040 and Dimensional 2020 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 Dimensional 2020 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 Dimensional 2020 Target, you can compare the effects of market volatilities on Dimensional 2040 and Dimensional 2020 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 Dimensional 2020. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional 2040 and Dimensional 2020.

Diversification Opportunities for Dimensional 2040 and Dimensional 2020

0.9

Correlation Coefficient

Dimensional 2040  Dimensional 2020

Almost no diversification

The 3 months correlation between Dimensional and Dimensional is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional 2040 Target and Dimensional 2020 Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional 2020 Target 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 Dimensional 2020. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional 2020 Target has no effect on the direction of Dimensional 2040 i.e., Dimensional 2040 and Dimensional 2020 go up and down completely randomly.

Pair Corralation between Dimensional 2040 and Dimensional 2020

Assuming the 90 days horizon Dimensional 2040 Target is expected to generate 1.13 times more return on investment than Dimensional 2020. However, Dimensional 2040 is 1.13 times more volatile than Dimensional 2020 Target. It trades about -0.32 of its potential returns per unit of risk. Dimensional 2020 Target is currently generating about -0.39 per unit of risk. If you would invest  1,655  in Dimensional 2040 Target on October 9, 2024 and sell it today you would lose (73.00) from holding Dimensional 2040 Target or give up 4.41% of portfolio value over 90 days.

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

Dimensional 2040 Target  vs.  Dimensional 2020 Target

Dimensional 2040 Target

Risk-Adjusted Performance

0 of 100

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.

Dimensional 2020 Target

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dimensional 2020 Target has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dimensional 2020 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 2040 and Dimensional 2020

The main advantage of trading using opposite Dimensional 2040 and Dimensional 2020 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional 2040 position performs unexpectedly, Dimensional 2020 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 2020 will offset losses from the drop in Dimensional 2020's long position.

The idea behind Dimensional 2040 Target and Dimensional 2020 Target 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.