Correlation Between Dimensional World and Capital Group
Can any of the company-specific risk be diversified away by investing in both Dimensional World and Capital Group 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 World and Capital Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional World ex and Capital Group International, you can compare the effects of market volatilities on Dimensional World and Capital Group 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 World with a short position of Capital Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional World and Capital Group.
Diversification Opportunities for Dimensional World and Capital Group
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dimensional and Capital is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional World ex and Capital Group International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Intern and Dimensional World 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 World ex are associated (or correlated) with Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Intern has no effect on the direction of Dimensional World i.e., Dimensional World and Capital Group go up and down completely randomly.
Pair Corralation between Dimensional World and Capital Group
Given the investment horizon of 90 days Dimensional World ex is expected to generate 1.05 times more return on investment than Capital Group. However, Dimensional World is 1.05 times more volatile than Capital Group International. It trades about -0.1 of its potential returns per unit of risk. Capital Group International is currently generating about -0.18 per unit of risk. If you would invest 2,598 in Dimensional World ex on August 26, 2024 and sell it today you would lose (49.00) from holding Dimensional World ex or give up 1.89% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional World ex vs. Capital Group International
Performance |
| Timeline |
| Dimensional World |
| Capital Group Intern |
Dimensional World and Capital Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional World and Capital Group
The main advantage of trading using opposite Dimensional World and Capital Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional World position performs unexpectedly, Capital Group 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 Capital Group will offset losses from the drop in Capital Group's long position.| Dimensional World vs. Dimensional Core Equity | Dimensional World vs. Dimensional Emerging Core | Dimensional World vs. Dimensional Targeted Value | Dimensional World vs. Dimensional Small Cap |
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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