Correlation Between Dimensional Emerging and Dimensional World
Can any of the company-specific risk be diversified away by investing in both Dimensional Emerging and Dimensional World 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 Emerging and Dimensional World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional Emerging Core and Dimensional World ex, you can compare the effects of market volatilities on Dimensional Emerging and Dimensional World 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 Emerging with a short position of Dimensional World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Emerging and Dimensional World.
Diversification Opportunities for Dimensional Emerging and Dimensional World
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dimensional and Dimensional is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Emerging Core and Dimensional World ex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional World and Dimensional Emerging 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 Emerging Core are associated (or correlated) with Dimensional World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional World has no effect on the direction of Dimensional Emerging i.e., Dimensional Emerging and Dimensional World go up and down completely randomly.
Pair Corralation between Dimensional Emerging and Dimensional World
Given the investment horizon of 90 days Dimensional Emerging Core is expected to under-perform the Dimensional World. In addition to that, Dimensional Emerging is 1.36 times more volatile than Dimensional World ex. It trades about -0.15 of its total potential returns per unit of risk. Dimensional World ex is currently generating about -0.19 per unit of volatility. If you would invest 2,714 in Dimensional World ex on August 28, 2024 and sell it today you would lose (163.00) from holding Dimensional World ex or give up 6.01% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional Emerging Core vs. Dimensional World ex
Performance |
| Timeline |
| Dimensional Emerging Core |
| Dimensional World |
Dimensional Emerging and Dimensional World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Emerging and Dimensional World
The main advantage of trading using opposite Dimensional Emerging and Dimensional World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Emerging position performs unexpectedly, Dimensional World 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 World will offset losses from the drop in Dimensional World's long position.The idea behind Dimensional Emerging Core and Dimensional World ex 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.
| Dimensional World vs. Dimensional Core Equity | Dimensional World vs. Dimensional Emerging Core | Dimensional World vs. Dimensional Targeted Value | Dimensional World vs. Dimensional Small Cap |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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