Correlation Between Vanguard Total and Dimensional Core
Can any of the company-specific risk be diversified away by investing in both Vanguard Total and Dimensional Core 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 Vanguard Total and Dimensional Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Total Stock and Dimensional Core Equity, you can compare the effects of market volatilities on Vanguard Total and Dimensional Core 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 Vanguard Total with a short position of Dimensional Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Dimensional Core.
Diversification Opportunities for Vanguard Total and Dimensional Core
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and Dimensional is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and Dimensional Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Core Equity and Vanguard Total 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 Vanguard Total Stock are associated (or correlated) with Dimensional Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Core Equity has no effect on the direction of Vanguard Total i.e., Vanguard Total and Dimensional Core go up and down completely randomly.
Pair Corralation between Vanguard Total and Dimensional Core
Considering the 90-day investment horizon Vanguard Total is expected to generate 1.2 times less return on investment than Dimensional Core. But when comparing it to its historical volatility, Vanguard Total Stock is 1.09 times less risky than Dimensional Core. It trades about 0.2 of its potential returns per unit of risk. Dimensional Core Equity is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 3,465 in Dimensional Core Equity on August 30, 2024 and sell it today you would earn a total of 162.00 from holding Dimensional Core Equity or generate 4.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Total Stock vs. Dimensional Core Equity
Performance |
| Timeline |
| Vanguard Total Stock |
| Dimensional Core Equity |
Vanguard Total and Dimensional Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Total and Dimensional Core
The main advantage of trading using opposite Vanguard Total and Dimensional Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total position performs unexpectedly, Dimensional Core 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 Core will offset losses from the drop in Dimensional Core's long position.| Vanguard Total vs. Vanguard SP 500 | Vanguard Total vs. Vanguard Total International | Vanguard Total vs. Vanguard Real Estate | Vanguard Total vs. Vanguard Total Bond |
| Dimensional Core vs. Dimensional Targeted Value | Dimensional Core vs. Dimensional World ex | Dimensional Core vs. Dimensional Small Cap | Dimensional Core vs. Dimensional Core Equity |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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