Correlation Between Dimensional Retirement and Vanguard Mid

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

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

Diversification Opportunities for Dimensional Retirement and Vanguard Mid

0.23

Correlation Coefficient

Dimensional Retirement  Vanguard Mid

Modest diversification

The 3 months correlation between Dimensional and Vanguard is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Retirement Income and Vanguard Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap and Dimensional Retirement 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 Retirement Income are associated (or correlated) with Vanguard Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid Cap has no effect on the direction of Dimensional Retirement i.e., Dimensional Retirement and Vanguard Mid go up and down completely randomly.

Pair Corralation between Dimensional Retirement and Vanguard Mid

Assuming the 90 days horizon Dimensional Retirement is expected to generate 2.99 times less return on investment than Vanguard Mid. But when comparing it to its historical volatility, Dimensional Retirement Income is 3.24 times less risky than Vanguard Mid. It trades about 0.14 of its potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6,421  in Vanguard Mid Cap Index on September 18, 2024 and sell it today you would earn a total of  1,109  from holding Vanguard Mid Cap Index or generate 17.27% return on investment over 90 days.

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

Dimensional Retirement Income  vs.  Vanguard Mid Cap Index

Dimensional Retirement

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard Mid Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Mid may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dimensional Retirement and Vanguard Mid

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

The idea behind Dimensional Retirement Income and Vanguard Mid Cap Index 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.