Correlation Between Small Cap and Dfa International

Can any of the company-specific risk be diversified away by investing in both Small Cap and Dfa International 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 Small Cap and Dfa International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Value and Dfa International Social, you can compare the effects of market volatilities on Small Cap and Dfa International 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 Small Cap with a short position of Dfa International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Dfa International.

Diversification Opportunities for Small Cap and Dfa International

-0.29

Correlation Coefficient

Small Cap  Dfa International

Very good diversification

The 3 months correlation between Small and DFA is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Dfa International Social in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa International Social and Small Cap 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 Small Cap Value are associated (or correlated) with Dfa International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa International Social has no effect on the direction of Small Cap i.e., Small Cap and Dfa International go up and down completely randomly.

Pair Corralation between Small Cap and Dfa International

Assuming the 90 days horizon Small Cap Value is expected to under-perform the Dfa International. In addition to that, Small Cap is 1.29 times more volatile than Dfa International Social. It trades about -0.07 of its total potential returns per unit of risk. Dfa International Social is currently generating about 0.23 per unit of volatility. If you would invest  1,426  in Dfa International Social on December 19, 2024 and sell it today you would earn a total of  164.00  from holding Dfa International Social or generate 11.5% return on investment over 90 days.

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

Small Cap Value  vs.  Dfa International Social

Small Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dfa International Social

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa International Social are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Dfa International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Small Cap and Dfa International

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

The idea behind Small Cap Value and Dfa International Social 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.