Correlation Between Dimensional International and Virtus WMC
Can any of the company-specific risk be diversified away by investing in both Dimensional International and Virtus WMC 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 International and Virtus WMC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional International Value and Virtus WMC International, you can compare the effects of market volatilities on Dimensional International and Virtus WMC 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 International with a short position of Virtus WMC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional International and Virtus WMC.
Diversification Opportunities for Dimensional International and Virtus WMC
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dimensional and Virtus is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional International Valu and Virtus WMC International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus WMC International and Dimensional International 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 International Value are associated (or correlated) with Virtus WMC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus WMC International has no effect on the direction of Dimensional International i.e., Dimensional International and Virtus WMC go up and down completely randomly.
Pair Corralation between Dimensional International and Virtus WMC
Given the investment horizon of 90 days Dimensional International Value is expected to generate 1.12 times more return on investment than Virtus WMC. However, Dimensional International is 1.12 times more volatile than Virtus WMC International. It trades about 0.06 of its potential returns per unit of risk. Virtus WMC International is currently generating about 0.04 per unit of risk. If you would invest 3,295 in Dimensional International Value on August 28, 2024 and sell it today you would earn a total of 354.00 from holding Dimensional International Value or generate 10.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.52% |
| Values | Daily Returns |
Dimensional International Valu vs. Virtus WMC International
Performance |
| Timeline |
| Dimensional International |
| Virtus WMC International |
Dimensional International and Virtus WMC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional International and Virtus WMC
The main advantage of trading using opposite Dimensional International and Virtus WMC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional International position performs unexpectedly, Virtus WMC 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 Virtus WMC will offset losses from the drop in Virtus WMC's long position.The idea behind Dimensional International Value and Virtus WMC International pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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