Correlation Between Dimensional Small and IShares Morningstar

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

Diversification Opportunities for Dimensional Small and IShares Morningstar

1.0

Correlation Coefficient

Dimensional Small  IShares Morningstar

No risk reduction

The 3 months correlation between Dimensional and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and iShares Morningstar Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar 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 IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of Dimensional Small i.e., Dimensional Small and IShares Morningstar go up and down completely randomly.

Pair Corralation between Dimensional Small and IShares Morningstar

Given the investment horizon of 90 days Dimensional Small is expected to generate 1.05 times less return on investment than IShares Morningstar. But when comparing it to its historical volatility, Dimensional Small Cap is 1.0 times less risky than IShares Morningstar. It trades about 0.04 of its potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,728  in iShares Morningstar Small Cap on October 11, 2024 and sell it today you would earn a total of  1,170  from holding iShares Morningstar Small Cap or generate 24.75% return on investment over 90 days.

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

Dimensional Small Cap  vs.  iShares Morningstar Small Cap

Dimensional Small Cap

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Small Cap are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Dimensional Small is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Morningstar

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, IShares Morningstar 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 IShares Morningstar

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

The idea behind Dimensional Small Cap and iShares Morningstar Small Cap 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 Commodity Directory module to find actively traded commodities issued by global exchanges.