Correlation Between Dimensional Targeted and Dimensional World

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

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

Diversification Opportunities for Dimensional Targeted and Dimensional World

0.8

Correlation Coefficient

Dimensional Targeted  Dimensional World

Very poor diversification

The 3 months correlation between Dimensional and Dimensional is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Targeted Value and Dimensional World ex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional World and Dimensional Targeted 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 Targeted Value are associated (or correlated) with Dimensional World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional World has no effect on the direction of Dimensional Targeted i.e., Dimensional Targeted and Dimensional World go up and down completely randomly.

Pair Corralation between Dimensional Targeted and Dimensional World

Given the investment horizon of 90 days Dimensional Targeted Value is expected to under-perform the Dimensional World. In addition to that, Dimensional Targeted is 1.38 times more volatile than Dimensional World ex. It trades about -0.22 of its total potential returns per unit of risk. Dimensional World ex is currently generating about -0.1 per unit of volatility. If you would invest  2,542  in Dimensional World ex on February 1, 2024 and sell it today you would lose (45.00) from holding Dimensional World ex or give up 1.77% of portfolio value over 90 days.

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

Dimensional Targeted Value  vs.  Dimensional World ex

Dimensional Targeted

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Targeted Value are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Dimensional Targeted is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Dimensional World

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional World ex are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Dimensional World is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dimensional Targeted and Dimensional World

The main advantage of trading using opposite Dimensional Targeted and Dimensional World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Targeted position performs unexpectedly, Dimensional World 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 World will offset losses from the drop in Dimensional World's long position.

The idea behind Dimensional Targeted Value and Dimensional World ex 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..