Correlation Between Dfa California and World Core

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

Diversification Opportunities for Dfa California and World Core

0.58

Correlation Coefficient

Dfa California  World Core

Very weak diversification

The 3 months correlation between Dfa and World is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Dfa California Municipal and World Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Core Equity 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 World Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Core Equity has no effect on the direction of Dfa California i.e., Dfa California and World Core go up and down completely randomly.

Pair Corralation between Dfa California and World Core

Assuming the 90 days horizon Dfa California is expected to generate 7.46 times less return on investment than World Core. But when comparing it to its historical volatility, Dfa California Municipal is 7.31 times less risky than World Core. It trades about 0.09 of its potential returns per unit of risk. World Core Equity is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,782  in World Core Equity on September 16, 2024 and sell it today you would earn a total of  715.00  from holding World Core Equity or generate 40.12% return on investment over 90 days.

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

Dfa California Municipal  vs.  World Core Equity

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.

World Core Equity

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in World Core Equity are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, World Core 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 World Core

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

The idea behind Dfa California Municipal and World Core Equity 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.