Correlation Between Dimensional World and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Dimensional World and SPDR SP 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 SPDR SP 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 SPDR SP World, you can compare the effects of market volatilities on Dimensional World and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional World and SPDR SP.
Diversification Opportunities for Dimensional World and SPDR SP
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dimensional and SPDR is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional World ex and SPDR SP World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP World 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP World has no effect on the direction of Dimensional World i.e., Dimensional World and SPDR SP go up and down completely randomly.
Pair Corralation between Dimensional World and SPDR SP
Given the investment horizon of 90 days Dimensional World is expected to generate 1.11 times less return on investment than SPDR SP. But when comparing it to its historical volatility, Dimensional World ex is 1.02 times less risky than SPDR SP. It trades about 0.06 of its potential returns per unit of risk. SPDR SP World is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 3,154 in SPDR SP World on November 5, 2024 and sell it today you would earn a total of 447.00 from holding SPDR SP World or generate 14.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional World ex vs. SPDR SP World
Performance |
| Timeline |
| Dimensional World |
| SPDR SP World |
Dimensional World and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional World and SPDR SP
The main advantage of trading using opposite Dimensional World and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional World position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.| Dimensional World vs. Dimensional Core Equity | Dimensional World vs. Dimensional Targeted Value | Dimensional World vs. Dimensional International Value | Dimensional World vs. Dimensional Small Cap |
| SPDR SP vs. SPDR Portfolio Emerging | SPDR SP vs. SPDR Portfolio SP | SPDR SP vs. SPDR Portfolio SP | SPDR SP vs. SPDR Russell Small |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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