Correlation Between Dimensional Emerging and Dimensional Core

Can any of the company-specific risk be diversified away by investing in both Dimensional Emerging 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 Dimensional Emerging and Dimensional Core into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dimensional Emerging Core and Dimensional Core Equity, you can compare the effects of market volatilities on Dimensional Emerging 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 Dimensional Emerging with a short position of Dimensional Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Emerging and Dimensional Core.

Diversification Opportunities for Dimensional Emerging and Dimensional Core

0.75

Correlation Coefficient

Dimensional Emerging  Dimensional Core

Poor diversification

The 3 months correlation between Dimensional and Dimensional is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Emerging Core 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 Dimensional Emerging 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 Emerging Core 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 Dimensional Emerging i.e., Dimensional Emerging and Dimensional Core go up and down completely randomly.

Pair Corralation between Dimensional Emerging and Dimensional Core

Given the investment horizon of 90 days Dimensional Emerging Core is expected to generate 1.05 times more return on investment than Dimensional Core. However, Dimensional Emerging is 1.05 times more volatile than Dimensional Core Equity. It trades about 0.09 of its potential returns per unit of risk. Dimensional Core Equity is currently generating about 0.07 per unit of risk. If you would invest  2,436  in Dimensional Emerging Core on March 4, 2024 and sell it today you would earn a total of  95.00  from holding Dimensional Emerging Core or generate 3.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Dimensional Emerging Core  vs.  Dimensional Core Equity

Dimensional Emerging Core

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Emerging Core are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Dimensional Emerging is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Dimensional Core Equity

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Dimensional Core is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dimensional Emerging and Dimensional Core

The main advantage of trading using opposite Dimensional Emerging and Dimensional Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Emerging 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.

The idea behind Dimensional Emerging Core and Dimensional Core Equity 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.