Correlation Between Dimensional Core and Principal Quality

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

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

Diversification Opportunities for Dimensional Core and Principal Quality

0.99

Correlation Coefficient

Dimensional Core  Principal Quality

No risk reduction

The 3 months correlation between Dimensional and Principal is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Principal Quality ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Quality ETF and Dimensional Core 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 Core Equity are associated (or correlated) with Principal Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Quality ETF has no effect on the direction of Dimensional Core i.e., Dimensional Core and Principal Quality go up and down completely randomly.

Pair Corralation between Dimensional Core and Principal Quality

Given the investment horizon of 90 days Dimensional Core Equity is expected to generate 0.99 times more return on investment than Principal Quality. However, Dimensional Core Equity is 1.01 times less risky than Principal Quality. It trades about 0.3 of its potential returns per unit of risk. Principal Quality ETF is currently generating about 0.29 per unit of risk. If you would invest  3,199  in Dimensional Core Equity on April 25, 2025 and sell it today you would earn a total of  499.00  from holding Dimensional Core Equity or generate 15.6% return on investment over 90 days.

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

Dimensional Core Equity  vs.  Principal Quality ETF

Dimensional Core Equity

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Dimensional Core exhibited solid returns over the last few months and may actually be approaching a breakup point.

Principal Quality ETF

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Quality ETF are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Principal Quality unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dimensional Core and Principal Quality

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

The idea behind Dimensional Core Equity and Principal Quality ETF 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.