Correlation Between Dimensional Targeted and Avantis Small
Can any of the company-specific risk be diversified away by investing in both Dimensional Targeted and Avantis Small 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 Targeted and Avantis Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional Targeted Value and Avantis Small Cap, you can compare the effects of market volatilities on Dimensional Targeted and Avantis Small 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 Targeted with a short position of Avantis Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Targeted and Avantis Small.
Diversification Opportunities for Dimensional Targeted and Avantis Small
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Dimensional and Avantis is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Targeted Value and Avantis Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Small Cap and Dimensional Targeted 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 Targeted Value are associated (or correlated) with Avantis Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Small Cap has no effect on the direction of Dimensional Targeted i.e., Dimensional Targeted and Avantis Small go up and down completely randomly.
Pair Corralation between Dimensional Targeted and Avantis Small
Given the investment horizon of 90 days Dimensional Targeted is expected to generate 1.07 times less return on investment than Avantis Small. But when comparing it to its historical volatility, Dimensional Targeted Value is 1.08 times less risky than Avantis Small. It trades about 0.07 of its potential returns per unit of risk. Avantis Small Cap is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 9,103 in Avantis Small Cap on August 24, 2024 and sell it today you would earn a total of 1,174 from holding Avantis Small Cap or generate 12.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional Targeted Value vs. Avantis Small Cap
Performance |
| Timeline |
| Dimensional Targeted |
| Avantis Small Cap |
Dimensional Targeted and Avantis Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Targeted and Avantis Small
The main advantage of trading using opposite Dimensional Targeted and Avantis Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Targeted position performs unexpectedly, Avantis Small 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 Avantis Small will offset losses from the drop in Avantis Small's long position.| Dimensional Targeted vs. Dimensional Small Cap | Dimensional Targeted vs. Dimensional Core Equity | Dimensional Targeted vs. Dimensional International Value | Dimensional Targeted vs. Dimensional Equity ETF |
| Avantis Small vs. Vanguard Small Cap Value | Avantis Small vs. iShares Russell 2000 | Avantis Small vs. Dimensional Targeted Value | Avantis Small vs. SPDR SP 600 |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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