Correlation Between Dimensional Core and FlexShares Morningstar
Can any of the company-specific risk be diversified away by investing in both Dimensional Core and FlexShares Morningstar 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 FlexShares Morningstar 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 FlexShares Morningstar Market, you can compare the effects of market volatilities on Dimensional Core and FlexShares Morningstar 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 FlexShares Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Core and FlexShares Morningstar.
Diversification Opportunities for Dimensional Core and FlexShares Morningstar
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Dimensional and FlexShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and FlexShares Morningstar Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Morningstar 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 FlexShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Morningstar has no effect on the direction of Dimensional Core i.e., Dimensional Core and FlexShares Morningstar go up and down completely randomly.
Pair Corralation between Dimensional Core and FlexShares Morningstar
Given the investment horizon of 90 days Dimensional Core is expected to generate 1.01 times less return on investment than FlexShares Morningstar. But when comparing it to its historical volatility, Dimensional Core Equity is 1.03 times less risky than FlexShares Morningstar. It trades about 0.12 of its potential returns per unit of risk. FlexShares Morningstar Market is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 16,144 in FlexShares Morningstar Market on September 2, 2024 and sell it today you would earn a total of 6,502 from holding FlexShares Morningstar Market or generate 40.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional Core Equity vs. FlexShares Morningstar Market
Performance |
| Timeline |
| Dimensional Core Equity |
| FlexShares Morningstar |
Dimensional Core and FlexShares Morningstar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Core and FlexShares Morningstar
The main advantage of trading using opposite Dimensional Core and FlexShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Core position performs unexpectedly, FlexShares Morningstar 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 FlexShares Morningstar will offset losses from the drop in FlexShares Morningstar's 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 |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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