Correlation Between International Core and Dfa Investment

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

By analyzing existing cross correlation between International E Equity and Dfa Investment Grade, you can compare the effects of market volatilities on International Core and Dfa Investment 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 International Core with a short position of Dfa Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Core and Dfa Investment.

Diversification Opportunities for International Core and Dfa Investment

0.73

Correlation Coefficient

International Core  Dfa Investment

Poor diversification

The 3 months correlation between International and Dfa is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding International E Equity and Dfa Investment Grade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Investment Grade and International Core 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 International E Equity are associated (or correlated) with Dfa Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Investment Grade has no effect on the direction of International Core i.e., International Core and Dfa Investment go up and down completely randomly.

Pair Corralation between International Core and Dfa Investment

Assuming the 90 days horizon International E Equity is expected to under-perform the Dfa Investment. In addition to that, International Core is 2.55 times more volatile than Dfa Investment Grade. It trades about -0.09 of its total potential returns per unit of risk. Dfa Investment Grade is currently generating about -0.01 per unit of volatility. If you would invest  1,016  in Dfa Investment Grade on August 30, 2024 and sell it today you would lose (2.00) from holding Dfa Investment Grade or give up 0.2% of portfolio value over 90 days.

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

International E Equity  vs.  Dfa Investment Grade

International E Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International E Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, International Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dfa Investment Grade

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with International Core and Dfa Investment

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

The idea behind International E Equity and Dfa Investment Grade 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.