Correlation Between Dimensional Small and IShares MSCI

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

Diversification Opportunities for Dimensional Small and IShares MSCI

0.85

Correlation Coefficient

Dimensional Small  IShares MSCI

Very poor diversification

The 3 months correlation between Dimensional and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Small Cap and iShares MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI World 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI World has no effect on the direction of Dimensional Small i.e., Dimensional Small and IShares MSCI go up and down completely randomly.

Pair Corralation between Dimensional Small and IShares MSCI

Given the investment horizon of 90 days Dimensional Small Cap is expected to generate 1.41 times more return on investment than IShares MSCI. However, Dimensional Small is 1.41 times more volatile than iShares MSCI World. It trades about 0.2 of its potential returns per unit of risk. iShares MSCI World is currently generating about 0.27 per unit of risk. If you would invest  5,780  in Dimensional Small Cap on April 30, 2025 and sell it today you would earn a total of  813.00  from holding Dimensional Small Cap or generate 14.07% return on investment over 90 days.

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

Dimensional Small Cap  vs.  iShares MSCI World

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.

iShares MSCI World

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI World are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal primary indicators, IShares MSCI disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dimensional Small and IShares MSCI

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

The idea behind Dimensional Small Cap and iShares MSCI World 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.