Correlation Between Nasdaq and Dimensional ETF

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

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

Diversification Opportunities for Nasdaq and Dimensional ETF

0.8

Correlation Coefficient

Nasdaq  Dimensional ETF

Very poor diversification

The 3 months correlation between Nasdaq and Dimensional is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Dimensional ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional ETF Trust and Nasdaq 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 Nasdaq Inc are associated (or correlated) with Dimensional ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional ETF Trust has no effect on the direction of Nasdaq i.e., Nasdaq and Dimensional ETF go up and down completely randomly.

Pair Corralation between Nasdaq and Dimensional ETF

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 1.55 times more return on investment than Dimensional ETF. However, Nasdaq is 1.55 times more volatile than Dimensional ETF Trust. It trades about 0.22 of its potential returns per unit of risk. Dimensional ETF Trust is currently generating about 0.09 per unit of risk. If you would invest  5,826  in Nasdaq Inc on September 15, 2024 and sell it today you would earn a total of  2,186  from holding Nasdaq Inc or generate 37.52% return on investment over 90 days.

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

Nasdaq Inc  vs.  Dimensional ETF Trust

Nasdaq Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dimensional ETF Trust

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional ETF Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, Dimensional ETF is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Nasdaq and Dimensional ETF

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

The idea behind Nasdaq Inc and Dimensional ETF Trust 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.