Correlation Between Dimensional Core and Dimensional Emerging
Can any of the company-specific risk be diversified away by investing in both Dimensional Core and Dimensional Emerging 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 Core and Dimensional Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional Core Equity and Dimensional Emerging Core, you can compare the effects of market volatilities on Dimensional Core and Dimensional Emerging 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 Core with a short position of Dimensional Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Core and Dimensional Emerging.
Diversification Opportunities for Dimensional Core and Dimensional Emerging
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Dimensional and Dimensional is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Dimensional Emerging Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Emerging Core and Dimensional Core 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 Core Equity are associated (or correlated) with Dimensional Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Emerging Core has no effect on the direction of Dimensional Core i.e., Dimensional Core and Dimensional Emerging go up and down completely randomly.
Pair Corralation between Dimensional Core and Dimensional Emerging
Given the investment horizon of 90 days Dimensional Core Equity is expected to generate 0.91 times more return on investment than Dimensional Emerging. However, Dimensional Core Equity is 1.1 times less risky than Dimensional Emerging. It trades about 0.2 of its potential returns per unit of risk. Dimensional Emerging Core is currently generating about -0.15 per unit of risk. If you would invest 4,001 in Dimensional Core Equity on August 25, 2024 and sell it today you would earn a total of 158.00 from holding Dimensional Core Equity or generate 3.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional Core Equity vs. Dimensional Emerging Core
Performance |
| Timeline |
| Dimensional Core Equity |
| Dimensional Emerging Core |
Dimensional Core and Dimensional Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Core and Dimensional Emerging
The main advantage of trading using opposite Dimensional Core and Dimensional Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Core position performs unexpectedly, Dimensional Emerging 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 Emerging will offset losses from the drop in Dimensional Emerging's long position.| Dimensional Core vs. Dimensional International Core | Dimensional Core vs. Dimensional Emerging Core | Dimensional Core vs. Dimensional Core Equity | Dimensional Core 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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