Correlation Between Dfa California and Dfa Inflation

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

Diversification Opportunities for Dfa California and Dfa Inflation

-0.4

Correlation Coefficient

Dfa California  Dfa Inflation

Very good diversification

The 3 months correlation between Dfa and Dfa is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Dfa California Municipal and Dfa Inflation Protected in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Inflation Protected 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 Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Inflation Protected has no effect on the direction of Dfa California i.e., Dfa California and Dfa Inflation go up and down completely randomly.

Pair Corralation between Dfa California and Dfa Inflation

Assuming the 90 days horizon Dfa California Municipal is expected to generate 0.55 times more return on investment than Dfa Inflation. However, Dfa California Municipal is 1.81 times less risky than Dfa Inflation. It trades about -0.01 of its potential returns per unit of risk. Dfa Inflation Protected is currently generating about -0.17 per unit of risk. If you would invest  1,068  in Dfa California Municipal on September 16, 2024 and sell it today you would lose (1.00) from holding Dfa California Municipal or give up 0.09% of portfolio value over 90 days.

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

Dfa California Municipal  vs.  Dfa Inflation Protected

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 Inflation Protected

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dfa Inflation Protected has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dfa Inflation 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 Inflation

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

The idea behind Dfa California Municipal and Dfa Inflation Protected 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.