Correlation Between Dfa Five and Us Lg

Can any of the company-specific risk be diversified away by investing in both Dfa Five and Us Lg 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 and Us Lg 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 Us Lg Cap, you can compare the effects of market volatilities on Dfa Five and Us Lg 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 with a short position of Us Lg. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa Five and Us Lg.

Diversification Opportunities for Dfa Five and Us Lg

0.19

Correlation Coefficient

Dfa Five  Us Lg

Average diversification

The 3 months correlation between Dfa and DUSQX is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Five Year Global and Us Lg Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Lg Cap and Dfa Five 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 Us Lg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Lg Cap has no effect on the direction of Dfa Five i.e., Dfa Five and Us Lg go up and down completely randomly.

Pair Corralation between Dfa Five and Us Lg

Assuming the 90 days horizon Dfa Five Year Global is expected to under-perform the Us Lg. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dfa Five Year Global is 2.0 times less risky than Us Lg. The mutual fund trades about -0.18 of its potential returns per unit of risk. The Us Lg Cap is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,356  in Us Lg Cap on September 27, 2024 and sell it today you would lose (44.00) from holding Us Lg Cap or give up 1.31% of portfolio value over 90 days.

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

Dfa Five Year Global  vs.  Us Lg Cap

Dfa Five Year

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dfa Five Year Global has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Dfa Five is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Us Lg Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Us Lg Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Us Lg 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 and Us Lg

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

The idea behind Dfa Five Year Global and Us Lg Cap 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.