Correlation Between Dimensional International and PGIM Large
Can any of the company-specific risk be diversified away by investing in both Dimensional International and PGIM Large 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 PGIM Large 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 PGIM Large Cap Buffer, you can compare the effects of market volatilities on Dimensional International and PGIM Large 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 PGIM Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional International and PGIM Large.
Diversification Opportunities for Dimensional International and PGIM Large
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dimensional and PGIM is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional International High and PGIM Large Cap Buffer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGIM Large 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 PGIM Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGIM Large Cap has no effect on the direction of Dimensional International i.e., Dimensional International and PGIM Large go up and down completely randomly.
Pair Corralation between Dimensional International and PGIM Large
Given the investment horizon of 90 days Dimensional International is expected to generate 1.35 times less return on investment than PGIM Large. In addition to that, Dimensional International is 2.33 times more volatile than PGIM Large Cap Buffer. It trades about 0.05 of its total potential returns per unit of risk. PGIM Large Cap Buffer is currently generating about 0.15 per unit of volatility. If you would invest 2,513 in PGIM Large Cap Buffer on August 30, 2024 and sell it today you would earn a total of 190.00 from holding PGIM Large Cap Buffer or generate 7.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 27.68% |
| Values | Daily Returns |
Dimensional International High vs. PGIM Large Cap Buffer
Performance |
| Timeline |
| Dimensional International |
| PGIM Large Cap |
Dimensional International and PGIM Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional International and PGIM Large
The main advantage of trading using opposite Dimensional International and PGIM Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional International position performs unexpectedly, PGIM Large 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 PGIM Large will offset losses from the drop in PGIM Large's long position.The idea behind Dimensional International High and PGIM Large Cap Buffer 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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