Correlation Between Dimensional 2050 and Emerging Markets

Can any of the company-specific risk be diversified away by investing in both Dimensional 2050 and Emerging Markets 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 2050 and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dimensional 2050 Target and Emerging Markets Small, you can compare the effects of market volatilities on Dimensional 2050 and Emerging Markets 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 2050 with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional 2050 and Emerging Markets.

Diversification Opportunities for Dimensional 2050 and Emerging Markets

0.83

Correlation Coefficient

Dimensional 2050  Emerging Markets

Very poor diversification

The 3 months correlation between Dimensional and Emerging is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional 2050 Target and Emerging Markets Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Small and Dimensional 2050 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 2050 Target are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Small has no effect on the direction of Dimensional 2050 i.e., Dimensional 2050 and Emerging Markets go up and down completely randomly.

Pair Corralation between Dimensional 2050 and Emerging Markets

Assuming the 90 days horizon Dimensional 2050 is expected to generate 6.07 times less return on investment than Emerging Markets. In addition to that, Dimensional 2050 is 1.35 times more volatile than Emerging Markets Small. It trades about 0.01 of its total potential returns per unit of risk. Emerging Markets Small is currently generating about 0.06 per unit of volatility. If you would invest  2,354  in Emerging Markets Small on February 20, 2025 and sell it today you would earn a total of  97.00  from holding Emerging Markets Small or generate 4.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Dimensional 2050 Target  vs.  Emerging Markets Small

Dimensional 2050 Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dimensional 2050 Target has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking indicators, Dimensional 2050 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerging Markets Small

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Small are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dimensional 2050 and Emerging Markets

The main advantage of trading using opposite Dimensional 2050 and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional 2050 position performs unexpectedly, Emerging Markets 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 Emerging Markets will offset losses from the drop in Emerging Markets' long position.

The idea behind Dimensional 2050 Target and Emerging Markets 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.