Correlation Between Dimensional International and Vanguard

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Can any of the company-specific risk be diversified away by investing in both Dimensional International and Vanguard 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 International and Vanguard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dimensional International High and Vanguard SP 500, you can compare the effects of market volatilities on Dimensional International and Vanguard 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 International with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional International and Vanguard.

Diversification Opportunities for Dimensional International and Vanguard

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Dimensional and Vanguard is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional International High and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and Dimensional 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 Dimensional International High are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of Dimensional International i.e., Dimensional International and Vanguard go up and down completely randomly.

Pair Corralation between Dimensional International and Vanguard

Given the investment horizon of 90 days Dimensional International is expected to generate 1.27 times less return on investment than Vanguard. But when comparing it to its historical volatility, Dimensional International High is 1.22 times less risky than Vanguard. It trades about 0.05 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  22,461  in Vanguard SP 500 on December 30, 2023 and sell it today you would earn a total of  8,010  from holding Vanguard SP 500 or generate 35.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy99.79%
ValuesDaily Returns

Dimensional International High  vs.  Vanguard SP 500

 Performance 
       Timeline  
Dimensional International 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional International High are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical indicators, Dimensional International may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Vanguard SP 500 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vanguard reported solid returns over the last few months and may actually be approaching a breakup point.

Dimensional International and Vanguard Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dimensional International and Vanguard

The main advantage of trading using opposite Dimensional International and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional International position performs unexpectedly, Vanguard 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 Vanguard will offset losses from the drop in Vanguard's long position.
The idea behind Dimensional International High and Vanguard SP 500 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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