Correlation Between Dimensional World and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both Dimensional World and Vanguard Total 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 Total 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 Total International, you can compare the effects of market volatilities on Dimensional World and Vanguard Total 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 Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional World and Vanguard Total.
Diversification Opportunities for Dimensional World and Vanguard Total
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 Total International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Inter 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 Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Inter has no effect on the direction of Dimensional World i.e., Dimensional World and Vanguard Total go up and down completely randomly.
Pair Corralation between Dimensional World and Vanguard Total
Given the investment horizon of 90 days Dimensional World is expected to generate 1.26 times less return on investment than Vanguard Total. But when comparing it to its historical volatility, Dimensional World ex is 1.09 times less risky than Vanguard Total. It trades about 0.09 of its potential returns per unit of risk. Vanguard Total International is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 5,881 in Vanguard Total International on October 20, 2024 and sell it today you would earn a total of 69.00 from holding Vanguard Total International or generate 1.17% 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 Total International
Performance |
| Timeline |
| Dimensional World |
| Vanguard Total Inter |
Dimensional World and Vanguard Total Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional World and Vanguard Total
The main advantage of trading using opposite Dimensional World and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional World position performs unexpectedly, Vanguard Total 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 Total will offset losses from the drop in Vanguard Total'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 |
| Vanguard Total vs. Vanguard Total Bond | Vanguard Total vs. Vanguard Total Stock | Vanguard Total vs. Vanguard Total International | Vanguard Total vs. Vanguard Total 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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