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 E 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

0.2

Correlation Coefficient

Emerging Markets  Dfa Inflation

Modest diversification

The 3 months correlation between Emerging and Dfa is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets E 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 E 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 E is expected to generate 3.09 times more return on investment than Dfa Inflation. However, Emerging Markets is 3.09 times more volatile than Dfa Inflation Protected. It trades about 0.02 of its potential returns per unit of risk. Dfa Inflation Protected is currently generating about -0.01 per unit of risk. If you would invest  2,368  in Emerging Markets E on September 3, 2024 and sell it today you would earn a total of  23.00  from holding Emerging Markets E or generate 0.97% return on investment over 90 days.

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

Emerging Markets E  vs.  Dfa Inflation Protected

Emerging Markets E

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets E are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. 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 E 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.