Correlation Between SPDR SP and Dimensional World

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

By analyzing existing cross correlation between SPDR SP World and Dimensional World ex, you can compare the effects of market volatilities on SPDR SP and Dimensional World 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 SPDR SP with a short position of Dimensional World. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Dimensional World.

Diversification Opportunities for SPDR SP and Dimensional World

0.93

Correlation Coefficient

SPDR SP  Dimensional World

Almost no diversification

The 3 months correlation between SPDR and Dimensional is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP World and Dimensional World ex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional World and SPDR SP 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 SPDR SP World are associated (or correlated) with Dimensional World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional World has no effect on the direction of SPDR SP i.e., SPDR SP and Dimensional World go up and down completely randomly.

Pair Corralation between SPDR SP and Dimensional World

Given the investment horizon of 90 days SPDR SP World is expected to under-perform the Dimensional World. But the etf apears to be less risky and, when comparing its historical volatility, SPDR SP World is 1.05 times less risky than Dimensional World. The etf trades about -0.03 of its potential returns per unit of risk. The Dimensional World ex is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,591  in Dimensional World ex on September 2, 2024 and sell it today you would lose (13.00) from holding Dimensional World ex or give up 0.5% of portfolio value over 90 days.

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

SPDR SP World  vs.  Dimensional World ex

SPDR SP World

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP World has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental 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.

Dimensional World

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dimensional World ex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Dimensional World is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and Dimensional World

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

The idea behind SPDR SP World and Dimensional World ex 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.