Correlation Between Dimensional Small and IShares Russell

Can any of the company-specific risk be diversified away by investing in both Dimensional Small and IShares Russell 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 IShares Russell 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 iShares Russell 2000, you can compare the effects of market volatilities on Dimensional Small and IShares Russell 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 IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Small and IShares Russell.

Diversification Opportunities for Dimensional Small and IShares Russell

0.91

Correlation Coefficient

Dimensional Small  IShares Russell

Almost no diversification

The 3 months correlation between Dimensional and IShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and iShares Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2000 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 IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 2000 has no effect on the direction of Dimensional Small i.e., Dimensional Small and IShares Russell go up and down completely randomly.

Pair Corralation between Dimensional Small and IShares Russell

Given the investment horizon of 90 days Dimensional Small Cap is expected to generate 0.88 times more return on investment than IShares Russell. However, Dimensional Small Cap is 1.13 times less risky than IShares Russell. It trades about 0.09 of its potential returns per unit of risk. iShares Russell 2000 is currently generating about 0.08 per unit of risk. If you would invest  5,894  in Dimensional Small Cap on February 20, 2024 and sell it today you would earn a total of  310.00  from holding Dimensional Small Cap or generate 5.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Dimensional Small Cap  vs.  iShares Russell 2000

Dimensional Small Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Small Cap are ranked lower than 7 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Russell 2000

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Russell is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Dimensional Small and IShares Russell

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

The idea behind Dimensional Small Cap and iShares Russell 2000 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..