Correlation Between Dimensional International and First Trust
Can any of the company-specific risk be diversified away by investing in both Dimensional International and First Trust 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 First Trust 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 First Trust Lunt, you can compare the effects of market volatilities on Dimensional International and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional International and First Trust.
Diversification Opportunities for Dimensional International and First Trust
-0.71 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Dimensional and First is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional International High and First Trust Lunt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Lunt 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Lunt has no effect on the direction of Dimensional International i.e., Dimensional International and First Trust go up and down completely randomly.
Pair Corralation between Dimensional International and First Trust
Given the investment horizon of 90 days Dimensional International is expected to generate 40.16 times less return on investment than First Trust. But when comparing it to its historical volatility, Dimensional International High is 1.12 times less risky than First Trust. It trades about 0.02 of its potential returns per unit of risk. First Trust Lunt is currently generating about 0.63 of returns per unit of risk over similar time horizon. If you would invest 3,119 in First Trust Lunt on September 2, 2024 and sell it today you would earn a total of 387.00 from holding First Trust Lunt or generate 12.41% 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. First Trust Lunt
Performance |
| Timeline |
| Dimensional International |
| First Trust Lunt |
Dimensional International and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional International and First Trust
The main advantage of trading using opposite Dimensional International and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional International position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.The idea behind Dimensional International High and First Trust Lunt 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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