Correlation Between Dimensional International and Innovator Small
Can any of the company-specific risk be diversified away by investing in both Dimensional International and Innovator 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 Innovator 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 Innovator Small Cap, you can compare the effects of market volatilities on Dimensional International and Innovator 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 Innovator Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional International and Innovator Small.
Diversification Opportunities for Dimensional International and Innovator Small
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dimensional and Innovator is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional International High and Innovator Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator 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 Innovator Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Small Cap has no effect on the direction of Dimensional International i.e., Dimensional International and Innovator Small go up and down completely randomly.
Pair Corralation between Dimensional International and Innovator Small
Given the investment horizon of 90 days Dimensional International is expected to generate 1.87 times less return on investment than Innovator Small. In addition to that, Dimensional International is 1.48 times more volatile than Innovator Small Cap. It trades about 0.06 of its total potential returns per unit of risk. Innovator Small Cap is currently generating about 0.16 per unit of volatility. If you would invest 2,493 in Innovator Small Cap on September 13, 2024 and sell it today you would earn a total of 160.00 from holding Innovator Small Cap or generate 6.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 14.55% |
| Values | Daily Returns |
Dimensional International High vs. Innovator Small Cap
Performance |
| Timeline |
| Dimensional International |
| Innovator Small Cap |
Dimensional International and Innovator Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional International and Innovator Small
The main advantage of trading using opposite Dimensional International and Innovator Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional International position performs unexpectedly, Innovator 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 Innovator Small will offset losses from the drop in Innovator Small's long position.The idea behind Dimensional International High and Innovator 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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