Correlation Between Dimensional Core and Dimensional Small
Can any of the company-specific risk be diversified away by investing in both Dimensional 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 Dimensional 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 Dimensional Core Equity and Dimensional Small Cap, you can compare the effects of market volatilities on Dimensional 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 Dimensional Core with a short position of Dimensional Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Core and Dimensional Small.
Diversification Opportunities for Dimensional Core and Dimensional Small
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 Core Equity 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 Dimensional 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 Dimensional Core Equity 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 Dimensional Core i.e., Dimensional Core and Dimensional Small go up and down completely randomly.
Pair Corralation between Dimensional Core and Dimensional Small
Given the investment horizon of 90 days Dimensional Core is expected to generate 1.51 times less return on investment than Dimensional Small. But when comparing it to its historical volatility, Dimensional Core Equity is 1.68 times less risky than Dimensional Small. It trades about 0.18 of its potential returns per unit of risk. Dimensional Small Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 6,472 in Dimensional Small Cap on August 28, 2024 and sell it today you would earn a total of 589.00 from holding Dimensional Small Cap or generate 9.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dimensional Core Equity vs. Dimensional Small Cap
Performance |
| Timeline |
| Dimensional Core Equity |
| Dimensional Small Cap |
Dimensional Core and Dimensional Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dimensional Core and Dimensional Small
The main advantage of trading using opposite Dimensional Core and Dimensional Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dimensional 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.| Dimensional Core vs. Dimensional International Core | Dimensional Core vs. Dimensional Emerging Core | Dimensional Core vs. Dimensional Core Equity | Dimensional Core vs. Dimensional Small Cap |
| Dimensional Small vs. Dimensional Targeted Value | Dimensional Small vs. Dimensional Equity ETF | Dimensional Small vs. Dimensional Core Equity | Dimensional Small vs. Dimensional International Core |
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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