Correlation Between Dimensional Small and Principal Small

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

Diversification Opportunities for Dimensional Small and Principal Small

0.99

Correlation Coefficient

Dimensional Small  Principal Small

No risk reduction

The 3 months correlation between Dimensional and Principal is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and Principal Small Cap Multi Fact in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Small Cap 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 Principal Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Small Cap has no effect on the direction of Dimensional Small i.e., Dimensional Small and Principal Small go up and down completely randomly.

Pair Corralation between Dimensional Small and Principal Small

Given the investment horizon of 90 days Dimensional Small Cap is expected to generate 0.98 times more return on investment than Principal Small. However, Dimensional Small Cap is 1.02 times less risky than Principal Small. It trades about 0.27 of its potential returns per unit of risk. Principal Small Cap Multi Factor is currently generating about 0.24 per unit of risk. If you would invest  5,434  in Dimensional Small Cap on April 20, 2025 and sell it today you would earn a total of  1,091  from holding Dimensional Small Cap or generate 20.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Dimensional Small Cap  vs.  Principal Small Cap Multi Fact

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 20 (%) 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.

Principal Small Cap

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Small Cap Multi Factor are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Principal Small exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dimensional Small and Principal Small

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

The idea behind Dimensional Small Cap and Principal Small Cap Multi Factor 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.