Correlation Between IShares Core and Dimensional Small

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

Diversification Opportunities for IShares Core and Dimensional Small

0.87

Correlation Coefficient

IShares Core  Dimensional Small

Very poor diversification

The 3 months correlation between IShares and Dimensional is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP 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 Core 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 Core SP 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 Core i.e., IShares Core and Dimensional Small go up and down completely randomly.

Pair Corralation between IShares Core and Dimensional Small

Considering the 90-day investment horizon iShares Core SP is expected to generate 0.63 times more return on investment than Dimensional Small. However, iShares Core SP is 1.58 times less risky than Dimensional Small. It trades about 0.08 of its potential returns per unit of risk. Dimensional Small Cap is currently generating about 0.02 per unit of risk. If you would invest  57,480  in iShares Core SP on September 29, 2024 and sell it today you would earn a total of  2,273  from holding iShares Core SP or generate 3.95% return on investment over 90 days.

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

iShares Core SP  vs.  Dimensional Small Cap

iShares Core SP

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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 Core and Dimensional Small

The main advantage of trading using opposite IShares Core and Dimensional Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 Core SP 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.