Correlation Between Dimensional Small and IndexIQ

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

Diversification Opportunities for Dimensional Small and IndexIQ

0.05

Correlation Coefficient

Dimensional Small  IndexIQ

Significant diversification

The 3 months correlation between Dimensional and IndexIQ is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and IndexIQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IndexIQ 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 IndexIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IndexIQ has no effect on the direction of Dimensional Small i.e., Dimensional Small and IndexIQ go up and down completely randomly.

Pair Corralation between Dimensional Small and IndexIQ

If you would invest (100.00) in IndexIQ on February 1, 2024 and sell it today you would earn a total of  100.00  from holding IndexIQ or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Dimensional Small Cap  vs.  IndexIQ

Dimensional Small Cap

Risk-Adjusted Performance

1 of 100

Insignificant

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

IndexIQ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IndexIQ has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IndexIQ is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dimensional Small and IndexIQ

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

The idea behind Dimensional Small Cap and IndexIQ 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.