Correlation Between Dimensional Small and WisdomTree Europe

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

Diversification Opportunities for Dimensional Small and WisdomTree Europe

0.94

Correlation Coefficient

Dimensional Small  WisdomTree Europe

Almost no diversification

The 3 months correlation between Dimensional and WisdomTree is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and WisdomTree Europe SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Europe 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 WisdomTree Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Europe has no effect on the direction of Dimensional Small i.e., Dimensional Small and WisdomTree Europe go up and down completely randomly.

Pair Corralation between Dimensional Small and WisdomTree Europe

Given the investment horizon of 90 days Dimensional Small Cap is expected to generate 1.57 times more return on investment than WisdomTree Europe. However, Dimensional Small is 1.57 times more volatile than WisdomTree Europe SmallCap. It trades about 0.2 of its potential returns per unit of risk. WisdomTree Europe SmallCap is currently generating about 0.27 per unit of risk. If you would invest  5,777  in Dimensional Small Cap on April 28, 2025 and sell it today you would earn a total of  823.00  from holding Dimensional Small Cap or generate 14.25% return on investment over 90 days.

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

Dimensional Small Cap  vs.  WisdomTree Europe SmallCap

Dimensional Small Cap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Small Cap are ranked lower than 15 (%) 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.

WisdomTree Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Europe SmallCap are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, WisdomTree Europe may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Dimensional Small and WisdomTree Europe

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

The idea behind Dimensional Small Cap and WisdomTree Europe SmallCap 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.