Correlation Between Dimensional Core and Overlay Shares
Can any of the company-specific risk be diversified away by investing in both Dimensional Core and Overlay Shares 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 Core and Overlay Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional Core Equity and Overlay Shares Large, you can compare the effects of market volatilities on Dimensional Core and Overlay Shares 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 Core with a short position of Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Core and Overlay Shares.
Diversification Opportunities for Dimensional Core and Overlay Shares
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dimensional and Overlay is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Overlay Shares Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Large and Dimensional Core 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 Core Equity are associated (or correlated) with Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Large has no effect on the direction of Dimensional Core i.e., Dimensional Core and Overlay Shares go up and down completely randomly.
Pair Corralation between Dimensional Core and Overlay Shares
Given the investment horizon of 90 days Dimensional Core Equity is expected to generate 0.96 times more return on investment than Overlay Shares. However, Dimensional Core Equity is 1.04 times less risky than Overlay Shares. It trades about 0.22 of its potential returns per unit of risk. Overlay Shares Large is currently generating about 0.16 per unit of risk. If you would invest 3,460 in Dimensional Core Equity on August 31, 2024 and sell it today you would earn a total of 167.00 from holding Dimensional Core Equity or generate 4.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Dimensional Core Equity vs. Overlay Shares Large
Performance |
| Timeline |
| Dimensional Core Equity |
| Overlay Shares Large |
Dimensional Core and Overlay Shares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Core and Overlay Shares
The main advantage of trading using opposite Dimensional Core and Overlay Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Core position performs unexpectedly, Overlay Shares 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 Overlay Shares will offset losses from the drop in Overlay Shares' long position.| Dimensional Core vs. Dimensional Targeted Value | Dimensional Core vs. Dimensional World ex | Dimensional Core vs. Dimensional Small Cap | Dimensional Core vs. Dimensional Core Equity |
| Overlay Shares vs. Vanguard Total Stock | Overlay Shares vs. SPDR SP 500 | Overlay Shares vs. iShares Core SP | Overlay Shares vs. Vanguard Dividend Appreciation |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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