Correlation Between Emerging Markets and Dfa Inflation

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

By analyzing existing cross correlation between Emerging Markets Targeted and Dfa Inflation Protected, you can compare the effects of market volatilities on Emerging Markets 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 Emerging Markets with a short position of Dfa Inflation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Dfa Inflation.

Diversification Opportunities for Emerging Markets and Dfa Inflation

0.46

Correlation Coefficient

Emerging Markets  Dfa Inflation

Very weak diversification

The 3 months correlation between Emerging and Dfa is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Targeted 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 Emerging Markets 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 Emerging Markets Targeted 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 Emerging Markets i.e., Emerging Markets and Dfa Inflation go up and down completely randomly.

Pair Corralation between Emerging Markets and Dfa Inflation

Assuming the 90 days horizon Emerging Markets Targeted is expected to generate 3.71 times more return on investment than Dfa Inflation. However, Emerging Markets is 3.71 times more volatile than Dfa Inflation Protected. It trades about -0.04 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  1,168  in Emerging Markets Targeted on September 16, 2024 and sell it today you would lose (34.00) from holding Emerging Markets Targeted or give up 2.91% of portfolio value over 90 days.

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

Emerging Markets Targeted  vs.  Dfa Inflation Protected

Emerging Markets Targeted

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerging Markets Targeted has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Emerging Markets 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 Emerging Markets and Dfa Inflation

The main advantage of trading using opposite Emerging Markets and Dfa Inflation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets 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 Emerging Markets Targeted 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.