Correlation Between FlexShares International and Dimensional Targeted
Can any of the company-specific risk be diversified away by investing in both FlexShares International and Dimensional Targeted 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 FlexShares International and Dimensional Targeted into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FlexShares International Quality and Dimensional Targeted Value, you can compare the effects of market volatilities on FlexShares International and Dimensional Targeted 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 FlexShares International with a short position of Dimensional Targeted. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares International and Dimensional Targeted.
Diversification Opportunities for FlexShares International and Dimensional Targeted
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between FlexShares and Dimensional is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares International Quali and Dimensional Targeted Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Targeted and FlexShares 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 FlexShares International Quality are associated (or correlated) with Dimensional Targeted. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Targeted has no effect on the direction of FlexShares International i.e., FlexShares International and Dimensional Targeted go up and down completely randomly.
Pair Corralation between FlexShares International and Dimensional Targeted
Given the investment horizon of 90 days FlexShares International is expected to generate 1.89 times less return on investment than Dimensional Targeted. But when comparing it to its historical volatility, FlexShares International Quality is 1.53 times less risky than Dimensional Targeted. It trades about 0.07 of its potential returns per unit of risk. Dimensional Targeted Value is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 4,763 in Dimensional Targeted Value on August 27, 2024 and sell it today you would earn a total of 1,255 from holding Dimensional Targeted Value or generate 26.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
FlexShares International Quali vs. Dimensional Targeted Value
Performance |
| Timeline |
| FlexShares International |
| Dimensional Targeted |
FlexShares International and Dimensional Targeted Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FlexShares International and Dimensional Targeted
The main advantage of trading using opposite FlexShares International and Dimensional Targeted positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares International position performs unexpectedly, Dimensional Targeted 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 Targeted will offset losses from the drop in Dimensional Targeted's long position.The idea behind FlexShares International Quality and Dimensional Targeted 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.
| Dimensional Targeted vs. Dimensional Small Cap | Dimensional Targeted vs. Dimensional Core Equity | Dimensional Targeted vs. Dimensional International Value | Dimensional Targeted vs. Dimensional Equity ETF |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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