Correlation Between Large Cap and Dimensional 2020

Can any of the company-specific risk be diversified away by investing in both Large Cap and Dimensional 2020 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 Large Cap and Dimensional 2020 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Large Cap International and Dimensional 2020 Target, you can compare the effects of market volatilities on Large Cap and Dimensional 2020 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 Large Cap with a short position of Dimensional 2020. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Dimensional 2020.

Diversification Opportunities for Large Cap and Dimensional 2020

0.93

Correlation Coefficient

Large Cap  Dimensional 2020

Almost no diversification

The 3 months correlation between Large and Dimensional is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap International and Dimensional 2020 Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional 2020 Target and Large Cap 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 Large Cap International are associated (or correlated) with Dimensional 2020. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional 2020 Target has no effect on the direction of Large Cap i.e., Large Cap and Dimensional 2020 go up and down completely randomly.

Pair Corralation between Large Cap and Dimensional 2020

Assuming the 90 days horizon Large Cap International is expected to generate 1.93 times more return on investment than Dimensional 2020. However, Large Cap is 1.93 times more volatile than Dimensional 2020 Target. It trades about 0.26 of its potential returns per unit of risk. Dimensional 2020 Target is currently generating about 0.29 per unit of risk. If you would invest  2,820  in Large Cap International on April 20, 2025 and sell it today you would earn a total of  317.00  from holding Large Cap International or generate 11.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Large Cap International  vs.  Dimensional 2020 Target

Large Cap International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap International are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Dimensional 2020 Target

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional 2020 Target are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dimensional 2020 may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Large Cap and Dimensional 2020

The main advantage of trading using opposite Large Cap and Dimensional 2020 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap position performs unexpectedly, Dimensional 2020 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 Dimensional 2020 will offset losses from the drop in Dimensional 2020's long position.

The idea behind Large Cap International and Dimensional 2020 Target 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.