Correlation Between Large Cap and Dfa Five-year

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

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

Diversification Opportunities for Large Cap and Dfa Five-year

0.59

Correlation Coefficient

Large Cap  Dfa Five-year

Very weak diversification

The 3 months correlation between Large and Dfa is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap International and Dfa Five Year Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Five Year and Large 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 Large Cap International are associated (or correlated) with Dfa Five-year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Five Year has no effect on the direction of Large Cap i.e., Large Cap and Dfa Five-year go up and down completely randomly.

Pair Corralation between Large Cap and Dfa Five-year

Assuming the 90 days horizon Large Cap International is expected to generate 18.24 times more return on investment than Dfa Five-year. However, Large Cap is 18.24 times more volatile than Dfa Five Year Global. It trades about 0.11 of its potential returns per unit of risk. Dfa Five Year Global is currently generating about 0.48 per unit of risk. If you would invest  2,760  in Large Cap International on November 28, 2024 and sell it today you would earn a total of  124.00  from holding Large Cap International or generate 4.49% return on investment over 90 days.

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

Large Cap International  vs.  Dfa Five Year Global

Large Cap International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap International are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dfa Five Year

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Five Year Global are ranked lower than 37 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Dfa Five-year is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large Cap and Dfa Five-year

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

The idea behind Large Cap International and Dfa Five Year Global 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.