Correlation Between Dfa Five-year and Emerging Markets

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

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

Diversification Opportunities for Dfa Five-year and Emerging Markets

0.07

Correlation Coefficient

Dfa Five-year  Emerging Markets

Significant diversification

The 3 months correlation between Dfa and Emerging is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Five Year Global and Emerging Markets E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets E and Dfa Five-year 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 Five Year Global are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets E has no effect on the direction of Dfa Five-year i.e., Dfa Five-year and Emerging Markets go up and down completely randomly.

Pair Corralation between Dfa Five-year and Emerging Markets

Assuming the 90 days horizon Dfa Five Year Global is expected to generate 0.04 times more return on investment than Emerging Markets. However, Dfa Five Year Global is 22.22 times less risky than Emerging Markets. It trades about 0.48 of its potential returns per unit of risk. Emerging Markets E is currently generating about -0.02 per unit of risk. If you would invest  1,005  in Dfa Five Year Global on August 30, 2024 and sell it today you would earn a total of  12.00  from holding Dfa Five Year Global or generate 1.19% return on investment over 90 days.

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

Dfa Five Year Global  vs.  Emerging Markets E

Dfa Five Year

Risk-Adjusted Performance

37 of 100

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.

Emerging Markets E

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerging Markets E 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.

Pair Trading with Dfa Five-year and Emerging Markets

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

The idea behind Dfa Five Year Global and Emerging Markets E 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.