Correlation Between Dimensional Core and Simplify Volatility

Can any of the company-specific risk be diversified away by investing in both Dimensional Core and Simplify Volatility 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 Simplify Volatility 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 Simplify Volatility Premium, you can compare the effects of market volatilities on Dimensional Core and Simplify Volatility 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 Simplify Volatility. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Core and Simplify Volatility.

Diversification Opportunities for Dimensional Core and Simplify Volatility

0.78

Correlation Coefficient

Dimensional Core  Simplify Volatility

Poor diversification

The 3 months correlation between Dimensional and Simplify is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Simplify Volatility Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Volatility 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 Simplify Volatility. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Volatility has no effect on the direction of Dimensional Core i.e., Dimensional Core and Simplify Volatility go up and down completely randomly.

Pair Corralation between Dimensional Core and Simplify Volatility

Given the investment horizon of 90 days Dimensional Core is expected to generate 1.3 times less return on investment than Simplify Volatility. But when comparing it to its historical volatility, Dimensional Core Equity is 3.45 times less risky than Simplify Volatility. It trades about 0.32 of its potential returns per unit of risk. Simplify Volatility Premium is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,459  in Simplify Volatility Premium on April 22, 2025 and sell it today you would earn a total of  315.00  from holding Simplify Volatility Premium or generate 21.59% return on investment over 90 days.

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

Dimensional Core Equity  vs.  Simplify Volatility Premium

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 25 (%) 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.

Simplify Volatility

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Volatility Premium are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Simplify Volatility disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dimensional Core and Simplify Volatility

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

The idea behind Dimensional Core Equity and Simplify Volatility Premium 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.