Correlation Between International Small and Dfa International

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

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

Diversification Opportunities for International Small and Dfa International

0.76

Correlation Coefficient

International Small  Dfa International

Poor diversification

The 3 months correlation between International and Dfa is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding International Small Pany and Dfa International Vector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa International Vector and International Small 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 Small Pany are associated (or correlated) with Dfa International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa International Vector has no effect on the direction of International Small i.e., International Small and Dfa International go up and down completely randomly.

Pair Corralation between International Small and Dfa International

Assuming the 90 days horizon International Small is expected to generate 1.23 times less return on investment than Dfa International. In addition to that, International Small is 1.03 times more volatile than Dfa International Vector. It trades about 0.05 of its total potential returns per unit of risk. Dfa International Vector is currently generating about 0.07 per unit of volatility. If you would invest  1,118  in Dfa International Vector on December 4, 2024 and sell it today you would earn a total of  319.00  from holding Dfa International Vector or generate 28.53% return on investment over 90 days.

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

International Small Pany  vs.  Dfa International Vector

International Small Pany

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in International Small Pany are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, International Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dfa International Vector

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa International Vector are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Dfa International 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 Small and Dfa International

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

The idea behind International Small Pany and Dfa International Vector 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.