Correlation Between IShares SP and Dimensional Small

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

By analyzing existing cross correlation between iShares SP 500 and Dimensional Small Cap, you can compare the effects of market volatilities on IShares SP and Dimensional Small 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 IShares SP with a short position of Dimensional Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and Dimensional Small.

Diversification Opportunities for IShares SP and Dimensional Small

0.81

Correlation Coefficient

IShares SP  Dimensional Small

Very poor diversification

The 3 months correlation between IShares and Dimensional is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and Dimensional Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Small Cap and IShares SP 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 iShares SP 500 are associated (or correlated) with Dimensional Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Small Cap has no effect on the direction of IShares SP i.e., IShares SP and Dimensional Small go up and down completely randomly.

Pair Corralation between IShares SP and Dimensional Small

Considering the 90-day investment horizon iShares SP 500 is expected to under-perform the Dimensional Small. But the etf apears to be less risky and, when comparing its historical volatility, iShares SP 500 is 1.8 times less risky than Dimensional Small. The etf trades about -0.04 of its potential returns per unit of risk. The Dimensional Small Cap is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  6,469  in Dimensional Small Cap on September 29, 2024 and sell it today you would earn a total of  76.00  from holding Dimensional Small Cap or generate 1.17% return on investment over 90 days.

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

iShares SP 500  vs.  Dimensional Small Cap

iShares SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares SP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Dimensional Small Cap

Risk-Adjusted Performance

1 of 100

Weak

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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares SP and Dimensional Small

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

The idea behind iShares SP 500 and Dimensional 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.