Correlation Between Dfa International and Dfa Sustainability

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

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

Diversification Opportunities for Dfa International and Dfa Sustainability

-0.61

Correlation Coefficient

Dfa International  Dfa Sustainability

Excellent diversification

The 3 months correlation between Dfa and Dfa is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dfa International Value and Dfa Sustainability Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Sustainability Core and Dfa International 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 International Value are associated (or correlated) with Dfa Sustainability. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Sustainability Core has no effect on the direction of Dfa International i.e., Dfa International and Dfa Sustainability go up and down completely randomly.

Pair Corralation between Dfa International and Dfa Sustainability

Assuming the 90 days horizon Dfa International is expected to generate 4.22 times less return on investment than Dfa Sustainability. But when comparing it to its historical volatility, Dfa International Value is 1.08 times less risky than Dfa Sustainability. It trades about 0.03 of its potential returns per unit of risk. Dfa Sustainability Core is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,195  in Dfa Sustainability Core on September 15, 2024 and sell it today you would earn a total of  521.00  from holding Dfa Sustainability Core or generate 12.42% return on investment over 90 days.

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

Dfa International Value  vs.  Dfa Sustainability Core

Dfa International Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dfa International Value has generated negative risk-adjusted returns adding no value to fund investors. 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.

Dfa Sustainability Core

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Sustainability Core are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Dfa Sustainability may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dfa International and Dfa Sustainability

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

The idea behind Dfa International Value and Dfa Sustainability Core 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.