Correlation Between Dimensional 2020 and Emerging Markets

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Can any of the company-specific risk be diversified away by investing in both Dimensional 2020 and Emerging Markets 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 2020 and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional 2020 Target and Emerging Markets Value, you can compare the effects of market volatilities on Dimensional 2020 and Emerging Markets 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 2020 with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional 2020 and Emerging Markets.

Diversification Opportunities for Dimensional 2020 and Emerging Markets

DimensionalEmergingDiversified AwayDimensionalEmergingDiversified Away100%
0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Dimensional and Emerging is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional 2020 Target and Emerging Markets Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Value and Dimensional 2020 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 2020 Target are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Value has no effect on the direction of Dimensional 2020 i.e., Dimensional 2020 and Emerging Markets go up and down completely randomly.

Pair Corralation between Dimensional 2020 and Emerging Markets

Assuming the 90 days horizon Dimensional 2020 is expected to generate 1.95 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Dimensional 2020 Target is 1.66 times less risky than Emerging Markets. It trades about 0.05 of its potential returns per unit of risk. Emerging Markets Value is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,510  in Emerging Markets Value on November 26, 2024 and sell it today you would earn a total of  599.00  from holding Emerging Markets Value or generate 23.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Dimensional 2020 Target  vs.  Emerging Markets Value

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -3-2-10123
JavaScript chart by amCharts 3.21.15DRIRX DFEVX
       Timeline  
Dimensional 2020 Target 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Dimensional 2020 Target has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dimensional 2020 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb10.710.810.91111.111.211.3
Emerging Markets Value 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Value are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb2929.53030.53131.5

Dimensional 2020 and Emerging Markets Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.34-0.99-0.64-0.29-0.01130.240.590.941.291.64 0.51.01.52.0
JavaScript chart by amCharts 3.21.15DRIRX DFEVX
       Returns  

Pair Trading with Dimensional 2020 and Emerging Markets

The main advantage of trading using opposite Dimensional 2020 and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional 2020 position performs unexpectedly, Emerging Markets 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 Emerging Markets will offset losses from the drop in Emerging Markets' long position.
The idea behind Dimensional 2020 Target and Emerging Markets Value 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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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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