Correlation Between Vanguard Total and Dimensional Core

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

By analyzing existing cross correlation between Vanguard Total Bond and Dimensional Core Equity, you can compare the effects of market volatilities on Vanguard Total and Dimensional Core 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 Vanguard Total with a short position of Dimensional Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Dimensional Core.

Diversification Opportunities for Vanguard Total and Dimensional Core

-0.55

Correlation Coefficient

Vanguard Total  Dimensional Core

Excellent diversification

The 3 months correlation between Vanguard and Dimensional is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond and Dimensional Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Core Equity and Vanguard Total 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 Vanguard Total Bond are associated (or correlated) with Dimensional Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Core Equity has no effect on the direction of Vanguard Total i.e., Vanguard Total and Dimensional Core go up and down completely randomly.

Pair Corralation between Vanguard Total and Dimensional Core

Considering the 90-day investment horizon Vanguard Total Bond is expected to under-perform the Dimensional Core. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Total Bond is 2.35 times less risky than Dimensional Core. The etf trades about -0.15 of its potential returns per unit of risk. The Dimensional Core Equity is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  3,350  in Dimensional Core Equity on September 15, 2024 and sell it today you would earn a total of  254.00  from holding Dimensional Core Equity or generate 7.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Vanguard Total Bond  vs.  Dimensional Core Equity

Vanguard Total Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Total Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard Total is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Dimensional Core Equity

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Core Equity are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Dimensional Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Total and Dimensional Core

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

The idea behind Vanguard Total Bond and Dimensional Core Equity 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.