Correlation Between Dimensional ETF and WisdomTree SmallCap

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

By analyzing existing cross correlation between Dimensional ETF Trust and WisdomTree SmallCap Quality, you can compare the effects of market volatilities on Dimensional ETF and WisdomTree SmallCap 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 ETF with a short position of WisdomTree SmallCap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional ETF and WisdomTree SmallCap.

Diversification Opportunities for Dimensional ETF and WisdomTree SmallCap

-0.04

Correlation Coefficient

Dimensional ETF  WisdomTree SmallCap

Good diversification

The 3 months correlation between Dimensional and WisdomTree is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional ETF Trust and WisdomTree SmallCap Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap and Dimensional ETF 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 ETF Trust are associated (or correlated) with WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of Dimensional ETF i.e., Dimensional ETF and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between Dimensional ETF and WisdomTree SmallCap

Given the investment horizon of 90 days Dimensional ETF Trust is expected to under-perform the WisdomTree SmallCap. But the etf apears to be less risky and, when comparing its historical volatility, Dimensional ETF Trust is 1.61 times less risky than WisdomTree SmallCap. The etf trades about -0.02 of its potential returns per unit of risk. The WisdomTree SmallCap Quality is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,662  in WisdomTree SmallCap Quality on October 25, 2024 and sell it today you would earn a total of  202.00  from holding WisdomTree SmallCap Quality or generate 7.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Dimensional ETF Trust  vs.  WisdomTree SmallCap Quality

Dimensional ETF Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

WisdomTree SmallCap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Quality are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal primary indicators, WisdomTree SmallCap may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Dimensional ETF and WisdomTree SmallCap

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

The idea behind Dimensional ETF Trust and WisdomTree SmallCap Quality 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.