Correlation Between Dimensional Small and Vanguard FTSE
Can any of the company-specific risk be diversified away by investing in both Dimensional Small and Vanguard FTSE 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 Small and Vanguard FTSE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional Small Cap and Vanguard FTSE Developed, you can compare the effects of market volatilities on Dimensional Small and Vanguard FTSE 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 Small with a short position of Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Small and Vanguard FTSE.
Diversification Opportunities for Dimensional Small and Vanguard FTSE
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dimensional and Vanguard is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and Vanguard FTSE Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Developed and Dimensional Small 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 Small Cap are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Developed has no effect on the direction of Dimensional Small i.e., Dimensional Small and Vanguard FTSE go up and down completely randomly.
Pair Corralation between Dimensional Small and Vanguard FTSE
Given the investment horizon of 90 days Dimensional Small Cap is expected to generate 1.41 times more return on investment than Vanguard FTSE. However, Dimensional Small is 1.41 times more volatile than Vanguard FTSE Developed. It trades about 0.06 of its potential returns per unit of risk. Vanguard FTSE Developed is currently generating about 0.05 per unit of risk. If you would invest 5,215 in Dimensional Small Cap on August 24, 2024 and sell it today you would earn a total of 1,784 from holding Dimensional Small Cap or generate 34.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional Small Cap vs. Vanguard FTSE Developed
Performance |
| Timeline |
| Dimensional Small Cap |
| Vanguard FTSE Developed |
Dimensional Small and Vanguard FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Small and Vanguard FTSE
The main advantage of trading using opposite Dimensional Small and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Small position performs unexpectedly, Vanguard FTSE 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 Vanguard FTSE will offset losses from the drop in Vanguard FTSE's long position.| Dimensional Small vs. Dimensional Targeted Value | Dimensional Small vs. Dimensional Equity ETF | Dimensional Small vs. Dimensional Core Equity | Dimensional Small vs. Dimensional International Core |
| Vanguard FTSE vs. Dimensional Core Equity | Vanguard FTSE vs. Dimensional Emerging Core | Vanguard FTSE vs. Dimensional Targeted Value | Vanguard FTSE 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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