Correlation Between Dimensional Small and Dimensional World

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

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

Diversification Opportunities for Dimensional Small and Dimensional World

-0.33

Correlation Coefficient

Dimensional Small  Dimensional World

Very good diversification

The 3 months correlation between Dimensional and Dimensional is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and Dimensional World ex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional World and Dimensional Small 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 Small Cap 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 Dimensional Small i.e., Dimensional Small and Dimensional World go up and down completely randomly.

Pair Corralation between Dimensional Small and Dimensional World

Given the investment horizon of 90 days Dimensional Small Cap is expected to generate 1.41 times more return on investment than Dimensional World. However, Dimensional Small is 1.41 times more volatile than Dimensional World ex. It trades about 0.17 of its potential returns per unit of risk. Dimensional World ex is currently generating about -0.01 per unit of risk. If you would invest  6,244  in Dimensional Small Cap on September 3, 2024 and sell it today you would earn a total of  825.00  from holding Dimensional Small Cap or generate 13.21% return on investment over 90 days.

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

Dimensional Small Cap  vs.  Dimensional World ex

Dimensional Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Small Cap are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Dimensional Small unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dimensional Small and Dimensional World

The main advantage of trading using opposite Dimensional Small and Dimensional World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Small 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 Dimensional Small Cap 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 Global Correlations module to find global opportunities by holding instruments from different markets.