Correlation Between Dimensional ETF and Vanguard Mid

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

Diversification Opportunities for Dimensional ETF and Vanguard Mid

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Dimensional and Vanguard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional ETF Trust and Vanguard Mid-Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid-Cap Index and Dimensional ETF 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 ETF Trust are associated (or correlated) with Vanguard Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid-Cap Index has no effect on the direction of Dimensional ETF i.e., Dimensional ETF and Vanguard Mid go up and down completely randomly.

Pair Corralation between Dimensional ETF and Vanguard Mid

Given the investment horizon of 90 days Dimensional ETF is expected to generate 1.43 times less return on investment than Vanguard Mid. In addition to that, Dimensional ETF is 1.07 times more volatile than Vanguard Mid Cap Index. It trades about 0.28 of its total potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about 0.43 per unit of volatility. If you would invest  20,621  in Vanguard Mid Cap Index on September 5, 2023 and sell it today you would earn a total of  1,564  from holding Vanguard Mid Cap Index or generate 7.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Dimensional ETF Trust  vs.  Vanguard Mid-Cap Index

 Performance 
       Timeline  
Dimensional ETF Trust 

Dimensional Performance

3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional ETF Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Dimensional ETF is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Vanguard Mid-Cap Index 

Vanguard Performance

2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard Mid is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the insiders.

Dimensional ETF and Vanguard Mid Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dimensional ETF and Vanguard Mid

The main advantage of trading using opposite Dimensional ETF and Vanguard Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional ETF position performs unexpectedly, Vanguard Mid 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 Mid will offset losses from the drop in Vanguard Mid's long position.
The idea behind Dimensional ETF Trust and Vanguard Mid Cap Index 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.
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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