Correlation Between Dimensional Small and Dimensional Core
Can any of the company-specific risk be diversified away by investing in both Dimensional Small and Dimensional Core 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 Dimensional Core 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 Dimensional Core Equity, you can compare the effects of market volatilities on Dimensional Small and Dimensional Core 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 Dimensional Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Small and Dimensional Core.
Diversification Opportunities for Dimensional Small and Dimensional Core
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dimensional and Dimensional is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and Dimensional Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Core Equity 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 Dimensional Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Core Equity has no effect on the direction of Dimensional Small i.e., Dimensional Small and Dimensional Core go up and down completely randomly.
Pair Corralation between Dimensional Small and Dimensional Core
Given the investment horizon of 90 days Dimensional Small Cap is expected to generate 1.72 times more return on investment than Dimensional Core. However, Dimensional Small is 1.72 times more volatile than Dimensional Core Equity. It trades about 0.25 of its potential returns per unit of risk. Dimensional Core Equity is currently generating about 0.2 per unit of risk. If you would invest 6,449 in Dimensional Small Cap on August 25, 2024 and sell it today you would earn a total of 550.00 from holding Dimensional Small Cap or generate 8.53% 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. Dimensional Core Equity
Performance |
| Timeline |
| Dimensional Small Cap |
| Dimensional Core Equity |
Dimensional Small and Dimensional Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Small and Dimensional Core
The main advantage of trading using opposite Dimensional Small and Dimensional Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Small position performs unexpectedly, Dimensional Core 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 Core will offset losses from the drop in Dimensional Core's long position.| Dimensional Small vs. Dimensional Targeted Value | Dimensional Small vs. Dimensional Equity ETF | Dimensional Small vs. Dimensional Core Equity | Dimensional Small vs. Dimensional International Core |
| Dimensional Core vs. Dimensional International Core | Dimensional Core vs. Dimensional Emerging Core | Dimensional Core vs. Dimensional Core Equity | Dimensional Core vs. Dimensional Small Cap |
Check out your portfolio center.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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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