Correlation Between Dimensional Small and WisdomTree Japan

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

Diversification Opportunities for Dimensional Small and WisdomTree Japan

0.09

Correlation Coefficient

Dimensional Small  WisdomTree Japan

Significant diversification

The 3 months correlation between Dimensional and WisdomTree is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and WisdomTree Japan Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Japan Hedged 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 Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Japan Hedged has no effect on the direction of Dimensional Small i.e., Dimensional Small and WisdomTree Japan go up and down completely randomly.

Pair Corralation between Dimensional Small and WisdomTree Japan

Given the investment horizon of 90 days Dimensional Small Cap is expected to generate 1.25 times more return on investment than WisdomTree Japan. However, Dimensional Small is 1.25 times more volatile than WisdomTree Japan Hedged. It trades about 0.2 of its potential returns per unit of risk. WisdomTree Japan Hedged is currently generating about 0.14 per unit of risk. If you would invest  5,777  in Dimensional Small Cap on April 27, 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	Insignificant
Accuracy	76.19%
Values	Daily Returns

Dimensional Small Cap  vs.  WisdomTree Japan Hedged

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 Japan Hedged

Risk-Adjusted Performance

OK

Over the last 90 days WisdomTree Japan Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively unsteady forward-looking indicators, WisdomTree Japan may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Dimensional Small and WisdomTree Japan

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

The idea behind Dimensional Small Cap and WisdomTree Japan Hedged 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.