Correlation Between Dimensional ETF and Invesco SP

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

Diversification Opportunities for Dimensional ETF and Invesco SP

-0.1

Correlation Coefficient

Dimensional ETF  Invesco SP

Good diversification

The 3 months correlation between Dimensional and Invesco is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional ETF Trust and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 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 Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP SmallCap has no effect on the direction of Dimensional ETF i.e., Dimensional ETF and Invesco SP go up and down completely randomly.

Pair Corralation between Dimensional ETF and Invesco SP

Given the investment horizon of 90 days Dimensional ETF Trust is expected to under-perform the Invesco SP. But the etf apears to be less risky and, when comparing its historical volatility, Dimensional ETF Trust is 1.92 times less risky than Invesco SP. The etf trades about -0.09 of its potential returns per unit of risk. The Invesco SP SmallCap is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  5,054  in Invesco SP SmallCap on October 9, 2024 and sell it today you would lose (20.00) from holding Invesco SP SmallCap or give up 0.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Dimensional ETF Trust  vs.  Invesco SP SmallCap

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.

Invesco SP SmallCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Invesco SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dimensional ETF and Invesco SP

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

The idea behind Dimensional ETF Trust and Invesco SP SmallCap 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.