Correlation Between NYSE Composite and Dimensional ETF

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

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

Diversification Opportunities for NYSE Composite and Dimensional ETF

0.36

Correlation Coefficient

NYSE Composite  Dimensional ETF

Weak diversification

The 3 months correlation between NYSE and Dimensional is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite 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 NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Dimensional ETF go up and down completely randomly.

Pair Corralation between NYSE Composite and Dimensional ETF

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.85 times more return on investment than Dimensional ETF. However, NYSE Composite is 1.17 times less risky than Dimensional ETF. It trades about 0.27 of its potential returns per unit of risk. Dimensional ETF Trust is currently generating about -0.03 per unit of risk. If you would invest  1,895,821  in NYSE Composite on October 20, 2024 and sell it today you would earn a total of  64,916  from holding NYSE Composite or generate 3.42% return on investment over 90 days.

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

NYSE Composite  vs.  Dimensional ETF Trust

Pair Trading with NYSE Composite and Dimensional ETF

The main advantage of trading using opposite NYSE Composite and Dimensional ETF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.