Correlation Between Dimensional World and Vanguard FTSE
Can any of the company-specific risk be diversified away by investing in both Dimensional World and Vanguard FTSE 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 Vanguard FTSE 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 Vanguard FTSE All World, you can compare the effects of market volatilities on Dimensional World and Vanguard FTSE 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 Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional World and Vanguard FTSE.
Diversification Opportunities for Dimensional World and Vanguard FTSE
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Dimensional and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional World ex and Vanguard FTSE All World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE All 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 Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE All has no effect on the direction of Dimensional World i.e., Dimensional World and Vanguard FTSE go up and down completely randomly.
Pair Corralation between Dimensional World and Vanguard FTSE
Given the investment horizon of 90 days Dimensional World ex is expected to generate 0.99 times more return on investment than Vanguard FTSE. However, Dimensional World ex is 1.01 times less risky than Vanguard FTSE. It trades about 0.06 of its potential returns per unit of risk. Vanguard FTSE All World is currently generating about 0.05 per unit of risk. If you would invest 2,063 in Dimensional World ex on August 27, 2024 and sell it today you would earn a total of 486.00 from holding Dimensional World ex or generate 23.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional World ex vs. Vanguard FTSE All World
Performance |
| Timeline |
| Dimensional World |
| Vanguard FTSE All |
Dimensional World and Vanguard FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional World and Vanguard FTSE
The main advantage of trading using opposite Dimensional World and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional World position performs unexpectedly, Vanguard FTSE 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 Vanguard FTSE will offset losses from the drop in Vanguard FTSE'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 |
| Vanguard FTSE vs. Vanguard FTSE Emerging | Vanguard FTSE vs. Vanguard Small Cap Index | Vanguard FTSE vs. Vanguard Total Bond | Vanguard FTSE vs. Vanguard FTSE All World |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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