Correlation Between Dimensional Emerging and First Trust
Can any of the company-specific risk be diversified away by investing in both Dimensional Emerging and First Trust 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 First Trust 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 First Trust Short, you can compare the effects of market volatilities on Dimensional Emerging and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Emerging and First Trust.
Diversification Opportunities for Dimensional Emerging and First Trust
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dimensional and First is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Emerging Core and First Trust Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Short 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Short has no effect on the direction of Dimensional Emerging i.e., Dimensional Emerging and First Trust go up and down completely randomly.
Pair Corralation between Dimensional Emerging and First Trust
Given the investment horizon of 90 days Dimensional Emerging Core is expected to generate 8.02 times more return on investment than First Trust. However, Dimensional Emerging is 8.02 times more volatile than First Trust Short. It trades about 0.08 of its potential returns per unit of risk. First Trust Short is currently generating about 0.18 per unit of risk. If you would invest 2,128 in Dimensional Emerging Core on August 26, 2024 and sell it today you would earn a total of 459.00 from holding Dimensional Emerging Core or generate 21.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional Emerging Core vs. First Trust Short
Performance |
| Timeline |
| Dimensional Emerging Core |
| First Trust Short |
Dimensional Emerging and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Emerging and First Trust
The main advantage of trading using opposite Dimensional Emerging and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Emerging position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.The idea behind Dimensional Emerging Core and First Trust Short 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.
| First Trust vs. Dimensional ETF Trust | First Trust vs. Dimensional ETF Trust | First Trust vs. Dimensional ETF Trust | First Trust vs. Dimensional Emerging Core |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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