Correlation Between MicroSectors FANG and Dimensional Targeted

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

By analyzing existing cross correlation between MicroSectors FANG Index and Dimensional Targeted Value, you can compare the effects of market volatilities on MicroSectors FANG and Dimensional Targeted 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 MicroSectors FANG with a short position of Dimensional Targeted. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Dimensional Targeted.

Diversification Opportunities for MicroSectors FANG and Dimensional Targeted

-0.54

Correlation Coefficient

MicroSectors FANG  Dimensional Targeted

Excellent diversification

The 3 months correlation between MicroSectors and Dimensional is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Dimensional Targeted Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Targeted and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with Dimensional Targeted. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Targeted has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Dimensional Targeted go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Dimensional Targeted

Given the investment horizon of 90 days MicroSectors FANG is expected to generate 2.8 times less return on investment than Dimensional Targeted. But when comparing it to its historical volatility, MicroSectors FANG Index is 4.02 times less risky than Dimensional Targeted. It trades about 0.06 of its potential returns per unit of risk. Dimensional Targeted Value is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,296  in Dimensional Targeted Value on May 10, 2025 and sell it today you would earn a total of  138.00  from holding Dimensional Targeted Value or generate 2.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	13.11%
Values	Daily Returns

MicroSectors FANG Index  vs.  Dimensional Targeted Value

MicroSectors FANG Index

Risk-Adjusted Performance

Soft

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, MicroSectors FANG is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Dimensional Targeted

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Targeted Value are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Dimensional Targeted is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with MicroSectors FANG and Dimensional Targeted

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

The idea behind MicroSectors FANG Index and Dimensional Targeted Value 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.