Correlation Between Dimensional Targeted and First Trust

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

Diversification Opportunities for Dimensional Targeted and First Trust

-0.53

Correlation Coefficient

Dimensional Targeted  First Trust

Excellent diversification

The 3 months correlation between Dimensional and First is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Targeted Value and First Trust Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Small 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Small has no effect on the direction of Dimensional Targeted i.e., Dimensional Targeted and First Trust go up and down completely randomly.

Pair Corralation between Dimensional Targeted and First Trust

Given the investment horizon of 90 days Dimensional Targeted is expected to generate 2.44 times less return on investment than First Trust. In addition to that, Dimensional Targeted is 1.34 times more volatile than First Trust Small. It trades about 0.2 of its total potential returns per unit of risk. First Trust Small is currently generating about 0.64 per unit of volatility. If you would invest  2,684  in First Trust Small on April 23, 2025 and sell it today you would earn a total of  143.00  from holding First Trust Small or generate 5.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	14.75%
Values	Daily Returns

Dimensional Targeted Value  vs.  First Trust Small

Dimensional Targeted

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Targeted Value are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Dimensional Targeted unveiled solid returns over the last few months and may actually be approaching a breakup point.

First Trust Small

Risk-Adjusted Performance

Excellent

Over the last 90 days First Trust Small has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady basic indicators, First Trust exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dimensional Targeted and First Trust

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

The idea behind Dimensional Targeted Value and First Trust Small 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.