Correlation Between Dimensional Equity and Dimensional Core
Can any of the company-specific risk be diversified away by investing in both Dimensional Equity and Dimensional Core 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 Equity and Dimensional Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional Equity ETF and Dimensional Core Equity, you can compare the effects of market volatilities on Dimensional Equity and Dimensional Core 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 Equity with a short position of Dimensional Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Equity and Dimensional Core.
Diversification Opportunities for Dimensional Equity and Dimensional Core
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Dimensional and Dimensional is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Equity ETF and Dimensional Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Core Equity and Dimensional Equity 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 Equity ETF are associated (or correlated) with Dimensional Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Core Equity has no effect on the direction of Dimensional Equity i.e., Dimensional Equity and Dimensional Core go up and down completely randomly.
Pair Corralation between Dimensional Equity and Dimensional Core
Given the investment horizon of 90 days Dimensional Equity ETF is expected to generate 0.98 times more return on investment than Dimensional Core. However, Dimensional Equity ETF is 1.02 times less risky than Dimensional Core. It trades about 0.11 of its potential returns per unit of risk. Dimensional Core Equity is currently generating about 0.1 per unit of risk. If you would invest 4,155 in Dimensional Equity ETF on August 28, 2024 and sell it today you would earn a total of 2,389 from holding Dimensional Equity ETF or generate 57.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional Equity ETF vs. Dimensional Core Equity
Performance |
| Timeline |
| Dimensional Equity ETF |
| Dimensional Core Equity |
Dimensional Equity and Dimensional Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Equity and Dimensional Core
The main advantage of trading using opposite Dimensional Equity and Dimensional Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Equity position performs unexpectedly, Dimensional Core 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 Dimensional Core will offset losses from the drop in Dimensional Core's long position.| Dimensional Equity vs. Dimensional Small Cap | Dimensional Equity vs. Dimensional Targeted Value | Dimensional Equity vs. Dimensional Core Equity | Dimensional Equity vs. Dimensional Core Equity |
| Dimensional Core vs. Morningstar Unconstrained Allocation | Dimensional Core vs. High Yield Municipal Fund | Dimensional Core vs. Via Renewables | Dimensional Core vs. Knife River |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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