Correlation Between FFEM and Dimensional International
Can any of the company-specific risk be diversified away by investing in both FFEM and Dimensional International 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 FFEM and Dimensional International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FFEM and Dimensional International Core, you can compare the effects of market volatilities on FFEM and Dimensional International 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 FFEM with a short position of Dimensional International. Check out your portfolio center. Please also check ongoing floating volatility patterns of FFEM and Dimensional International.
Diversification Opportunities for FFEM and Dimensional International
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between FFEM and Dimensional is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding FFEM and Dimensional International Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional International and FFEM 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 FFEM are associated (or correlated) with Dimensional International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional International has no effect on the direction of FFEM i.e., FFEM and Dimensional International go up and down completely randomly.
Pair Corralation between FFEM and Dimensional International
Given the investment horizon of 90 days FFEM is expected to under-perform the Dimensional International. But the etf apears to be less risky and, when comparing its historical volatility, FFEM is 1.07 times less risky than Dimensional International. The etf trades about -0.06 of its potential returns per unit of risk. The Dimensional International Core is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 2,625 in Dimensional International Core on October 23, 2024 and sell it today you would lose (13.00) from holding Dimensional International Core or give up 0.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
FFEM vs. Dimensional International Core
Performance |
| Timeline |
| FFEM |
| Dimensional International |
FFEM and Dimensional International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FFEM and Dimensional International
The main advantage of trading using opposite FFEM and Dimensional International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FFEM position performs unexpectedly, Dimensional International 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 Dimensional International will offset losses from the drop in Dimensional International's long position.| FFEM vs. Dimensional International Core | FFEM vs. Dimensional Core Equity | FFEM vs. Dimensional ETF Trust | FFEM vs. Dimensional ETF Trust |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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