Correlation Between Large Cap and Dfa Intermediate

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

Diversification Opportunities for Large Cap and Dfa Intermediate

0.77

Correlation Coefficient

Large Cap  Dfa Intermediate

Poor diversification

The 3 months correlation between Large and Dfa is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap International and Dfa Intermediate Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Intermediate Gov 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 Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Intermediate Gov has no effect on the direction of Large Cap i.e., Large Cap and Dfa Intermediate go up and down completely randomly.

Pair Corralation between Large Cap and Dfa Intermediate

Assuming the 90 days horizon Large Cap International is expected to generate 2.09 times more return on investment than Dfa Intermediate. However, Large Cap is 2.09 times more volatile than Dfa Intermediate Government. It trades about 0.04 of its potential returns per unit of risk. Dfa Intermediate Government is currently generating about 0.04 per unit of risk. If you would invest  2,485  in Large Cap International on September 12, 2024 and sell it today you would earn a total of  282.00  from holding Large Cap International or generate 11.35% return on investment over 90 days.

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

Large Cap International  vs.  Dfa Intermediate Government

Large Cap International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dfa Intermediate Gov

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Large Cap International and Dfa Intermediate Government 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.