Correlation Between Dimensional Emerging and Dimensional ETF
Can any of the company-specific risk be diversified away by investing in both Dimensional Emerging 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 Dimensional Emerging and Dimensional ETF 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 ETF Trust, you can compare the effects of market volatilities on Dimensional Emerging 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 Dimensional Emerging with a short position of Dimensional ETF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Emerging and Dimensional ETF.
Diversification Opportunities for Dimensional Emerging and Dimensional ETF
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Dimensional and Dimensional is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Emerging Core 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 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 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 Dimensional Emerging i.e., Dimensional Emerging and Dimensional ETF go up and down completely randomly.
Pair Corralation between Dimensional Emerging and Dimensional ETF
Given the investment horizon of 90 days Dimensional Emerging is expected to generate 1.63 times less return on investment than Dimensional ETF. But when comparing it to its historical volatility, Dimensional Emerging Core is 1.41 times less risky than Dimensional ETF. It trades about 0.05 of its potential returns per unit of risk. Dimensional ETF Trust is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 2,463 in Dimensional ETF Trust on August 28, 2024 and sell it today you would earn a total of 924.00 from holding Dimensional ETF Trust or generate 37.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional Emerging Core vs. Dimensional ETF Trust
Performance |
| Timeline |
| Dimensional Emerging Core |
| Dimensional ETF Trust |
Dimensional Emerging and Dimensional ETF Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Emerging and Dimensional ETF
The main advantage of trading using opposite Dimensional Emerging and Dimensional ETF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Emerging 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 Dimensional Emerging Core 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.
| Dimensional ETF vs. Dimensional ETF Trust | Dimensional ETF vs. Vanguard Small Cap Index | Dimensional ETF vs. First Trust Multi Manager | Dimensional ETF vs. Vanguard SP 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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