Correlation Between Dimensional International and Avantis Small
Can any of the company-specific risk be diversified away by investing in both Dimensional International and Avantis Small 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 Avantis Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional International High and Avantis Small Cap, you can compare the effects of market volatilities on Dimensional International and Avantis Small 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 Avantis Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional International and Avantis Small.
Diversification Opportunities for Dimensional International and Avantis Small
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dimensional and Avantis is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional International High and Avantis Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Small Cap 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 High are associated (or correlated) with Avantis Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Small Cap has no effect on the direction of Dimensional International i.e., Dimensional International and Avantis Small go up and down completely randomly.
Pair Corralation between Dimensional International and Avantis Small
Given the investment horizon of 90 days Dimensional International High is expected to under-perform the Avantis Small. But the etf apears to be less risky and, when comparing its historical volatility, Dimensional International High is 1.66 times less risky than Avantis Small. The etf trades about -0.02 of its potential returns per unit of risk. The Avantis Small Cap is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 9,019 in Avantis Small Cap on September 3, 2024 and sell it today you would earn a total of 1,530 from holding Avantis Small Cap or generate 16.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional International High vs. Avantis Small Cap
Performance |
| Timeline |
| Dimensional International |
| Avantis Small Cap |
Dimensional International and Avantis Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional International and Avantis Small
The main advantage of trading using opposite Dimensional International and Avantis Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional International position performs unexpectedly, Avantis Small 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 Avantis Small will offset losses from the drop in Avantis Small's long position.The idea behind Dimensional International High and Avantis Small Cap 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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