Correlation Between Vanguard Large and Dimensional Core

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

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

Diversification Opportunities for Vanguard Large and Dimensional Core

1.0

Correlation Coefficient

Vanguard Large  Dimensional Core

No risk reduction

The 3 months correlation between Vanguard and Dimensional is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index and Dimensional Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Core Equity and Vanguard Large 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 Vanguard Large Cap Index are associated (or correlated) with Dimensional Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Core Equity has no effect on the direction of Vanguard Large i.e., Vanguard Large and Dimensional Core go up and down completely randomly.

Pair Corralation between Vanguard Large and Dimensional Core

Allowing for the 90-day total investment horizon Vanguard Large Cap Index is expected to generate 1.02 times more return on investment than Dimensional Core. However, Vanguard Large is 1.02 times more volatile than Dimensional Core Equity. It trades about -0.08 of its potential returns per unit of risk. Dimensional Core Equity is currently generating about -0.09 per unit of risk. If you would invest  26,985  in Vanguard Large Cap Index on December 30, 2024 and sell it today you would lose (1,438) from holding Vanguard Large Cap Index or give up 5.33% of portfolio value over 90 days.

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

Vanguard Large Cap Index  vs.  Dimensional Core Equity

Vanguard Large Cap

Risk-Adjusted Performance

Very Weak

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

Dimensional Core Equity

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Vanguard Large and Dimensional Core

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

The idea behind Vanguard Large Cap Index and Dimensional Core Equity 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.