Correlation Between Dfa California and Dfa International

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

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

Diversification Opportunities for Dfa California and Dfa International

-0.42

Correlation Coefficient

Dfa California  Dfa International

Very good diversification

The 3 months correlation between Dfa and Dfa is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Dfa California Municipal and Dfa International Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa International Value and Dfa California 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 Dfa California Municipal 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 Value has no effect on the direction of Dfa California i.e., Dfa California and Dfa International go up and down completely randomly.

Pair Corralation between Dfa California and Dfa International

Assuming the 90 days horizon Dfa California is expected to generate 5.75 times less return on investment than Dfa International. But when comparing it to its historical volatility, Dfa California Municipal is 8.41 times less risky than Dfa International. It trades about 0.08 of its potential returns per unit of risk. Dfa International Value is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,648  in Dfa International Value on September 14, 2024 and sell it today you would earn a total of  178.00  from holding Dfa International Value or generate 10.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Dfa California Municipal  vs.  Dfa International Value

Dfa California Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dfa International Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dfa California and Dfa International

The main advantage of trading using opposite Dfa California and Dfa International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa California 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 Dfa California Municipal and Dfa International Value 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.