Correlation Between Dimensional Targeted and SPDR SP

Can any of the company-specific risk be diversified away by investing in both Dimensional Targeted and SPDR SP 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 SPDR SP 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 SPDR SP 600, you can compare the effects of market volatilities on Dimensional Targeted and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Targeted and SPDR SP.

Diversification Opportunities for Dimensional Targeted and SPDR SP

0.99

Correlation Coefficient

Dimensional Targeted  SPDR SP

No risk reduction

The 3 months correlation between Dimensional and SPDR is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Targeted Value and SPDR SP 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 600 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 600 has no effect on the direction of Dimensional Targeted i.e., Dimensional Targeted and SPDR SP go up and down completely randomly.

Pair Corralation between Dimensional Targeted and SPDR SP

Given the investment horizon of 90 days Dimensional Targeted is expected to generate 1.81 times less return on investment than SPDR SP. But when comparing it to its historical volatility, Dimensional Targeted Value is 1.01 times less risky than SPDR SP. It trades about 0.02 of its potential returns per unit of risk. SPDR SP 600 is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,636  in SPDR SP 600 on September 24, 2024 and sell it today you would earn a total of  171.00  from holding SPDR SP 600 or generate 1.98% return on investment over 90 days.

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

Dimensional Targeted Value  vs.  SPDR SP 600

Dimensional Targeted

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Targeted Value are ranked lower than 1 (%) 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.

SPDR SP 600

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 600 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Dimensional Targeted and SPDR SP

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

The idea behind Dimensional Targeted Value and SPDR SP 600 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.