Correlation Between Dimensional Small and Dimensional Targeted

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

Diversification Opportunities for Dimensional Small and Dimensional Targeted

0.76

Correlation Coefficient

Dimensional Small  Dimensional Targeted

Poor diversification

The 3 months correlation between Dimensional and Dimensional is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and Dimensional Targeted Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Targeted 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 Targeted. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Targeted has no effect on the direction of Dimensional Small i.e., Dimensional Small and Dimensional Targeted go up and down completely randomly.

Pair Corralation between Dimensional Small and Dimensional Targeted

Given the investment horizon of 90 days Dimensional Small is expected to generate 1.01 times less return on investment than Dimensional Targeted. But when comparing it to its historical volatility, Dimensional Small Cap is 1.1 times less risky than Dimensional Targeted. It trades about 0.21 of its potential returns per unit of risk. Dimensional Targeted Value is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  4,801  in Dimensional Targeted Value on April 23, 2025 and sell it today you would earn a total of  726.00  from holding Dimensional Targeted Value or generate 15.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Dimensional Small Cap  vs.  Dimensional Targeted Value

Dimensional Small Cap

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Small Cap are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Dimensional Small unveiled solid returns over the last few months and may actually be approaching a breakup point.

Dimensional Targeted

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Targeted Value are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Dimensional Targeted unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dimensional Small and Dimensional Targeted

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

The idea behind Dimensional Small Cap and Dimensional Targeted 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.