Correlation Between Dimensional Targeted and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both Dimensional Targeted and Vanguard Total 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 Vanguard Total 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 Vanguard Total Stock, you can compare the effects of market volatilities on Dimensional Targeted and Vanguard Total 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 Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Targeted and Vanguard Total.
Diversification Opportunities for Dimensional Targeted and Vanguard Total
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dimensional and Vanguard is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Targeted Value and Vanguard Total Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Stock 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 Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Stock has no effect on the direction of Dimensional Targeted i.e., Dimensional Targeted and Vanguard Total go up and down completely randomly.
Pair Corralation between Dimensional Targeted and Vanguard Total
Given the investment horizon of 90 days Dimensional Targeted Value is expected to generate 1.14 times more return on investment than Vanguard Total. However, Dimensional Targeted is 1.14 times more volatile than Vanguard Total Stock. It trades about -0.14 of its potential returns per unit of risk. Vanguard Total Stock is currently generating about -0.23 per unit of risk. If you would invest 5,396 in Dimensional Targeted Value on January 31, 2024 and sell it today you would lose (170.00) from holding Dimensional Targeted Value or give up 3.15% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Dimensional Targeted Value vs. Vanguard Total Stock
Performance |
Timeline |
Dimensional Targeted |
Vanguard Total Stock |
Dimensional Targeted and Vanguard Total Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Dimensional Targeted and Vanguard Total
The main advantage of trading using opposite Dimensional Targeted and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Targeted position performs unexpectedly, Vanguard Total 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 Total will offset losses from the drop in Vanguard Total's long position.Dimensional Targeted vs. Dimensional Small Cap | Dimensional Targeted vs. Dimensional Core Equity | Dimensional Targeted vs. Dimensional International Value | Dimensional Targeted vs. Dimensional Equity ETF |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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