Correlation Between Dimensional Targeted and First Trust
Can any of the company-specific risk be diversified away by investing in both Dimensional Targeted 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 Targeted 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 Targeted Value and First Trust Small, you can compare the effects of market volatilities on Dimensional Targeted 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 Targeted with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Targeted and First Trust.
Diversification Opportunities for Dimensional Targeted and First Trust
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dimensional and First is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Targeted Value and First Trust Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Small 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 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 Small has no effect on the direction of Dimensional Targeted i.e., Dimensional Targeted and First Trust go up and down completely randomly.
Pair Corralation between Dimensional Targeted and First Trust
Given the investment horizon of 90 days Dimensional Targeted Value is expected to generate 0.92 times more return on investment than First Trust. However, Dimensional Targeted Value is 1.09 times less risky than First Trust. It trades about 0.06 of its potential returns per unit of risk. First Trust Small is currently generating about 0.05 per unit of risk. If you would invest 4,388 in Dimensional Targeted Value on August 27, 2024 and sell it today you would earn a total of 1,630 from holding Dimensional Targeted Value or generate 37.15% 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. First Trust Small
Performance |
| Timeline |
| Dimensional Targeted |
| First Trust Small |
Dimensional Targeted and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Targeted and First Trust
The main advantage of trading using opposite Dimensional Targeted and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Targeted 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.| Dimensional Targeted vs. Dimensional Small Cap | Dimensional Targeted vs. Dimensional Core Equity | Dimensional Targeted vs. Dimensional International Value | Dimensional Targeted vs. Dimensional Equity ETF |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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