Correlation Between Dimensional Small and Dimensional International

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

Diversification Opportunities for Dimensional Small and Dimensional International

-0.36
  Correlation Coefficient

Very good diversification

The 3 months correlation between Dimensional and Dimensional is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and Dimensional International Valu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional International 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 International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional International has no effect on the direction of Dimensional Small i.e., Dimensional Small and Dimensional International go up and down completely randomly.

Pair Corralation between Dimensional Small and Dimensional International

Given the investment horizon of 90 days Dimensional Small Cap is expected to generate 1.5 times more return on investment than Dimensional International. However, Dimensional Small is 1.5 times more volatile than Dimensional International Value. It trades about 0.09 of its potential returns per unit of risk. Dimensional International Value is currently generating about 0.06 per unit of risk. If you would invest  5,718  in Dimensional Small Cap on August 28, 2024 and sell it today you would earn a total of  1,397  from holding Dimensional Small Cap or generate 24.43% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Dimensional Small Cap  vs.  Dimensional International Valu

 Performance 
       Timeline  
Dimensional Small Cap 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Small Cap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Dimensional Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Dimensional International 

Risk-Adjusted Performance

0 of 100

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

Dimensional Small and Dimensional International Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dimensional Small and Dimensional International

The main advantage of trading using opposite Dimensional Small and Dimensional International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional Small position performs unexpectedly, Dimensional International 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 International will offset losses from the drop in Dimensional International's long position.
The idea behind Dimensional Small Cap and Dimensional International Value 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 Valuation module to check real value of public entities based on technical and fundamental data.

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