Correlation Between Us Large and Dfa Five

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

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

Diversification Opportunities for Us Large and Dfa Five

0.72

Correlation Coefficient

Us Large  Dfa Five

Poor diversification

The 3 months correlation between DFLVX and Dfa is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Us Large Cap and Dfa Five Year Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Five Year and Us Large 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 Us Large Cap are associated (or correlated) with Dfa Five. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Five Year has no effect on the direction of Us Large i.e., Us Large and Dfa Five go up and down completely randomly.

Pair Corralation between Us Large and Dfa Five

Assuming the 90 days horizon Us Large Cap is expected to generate 7.93 times more return on investment than Dfa Five. However, Us Large is 7.93 times more volatile than Dfa Five Year Global. It trades about 0.07 of its potential returns per unit of risk. Dfa Five Year Global is currently generating about 0.16 per unit of risk. If you would invest  3,939  in Us Large Cap on September 14, 2024 and sell it today you would earn a total of  1,222  from holding Us Large Cap or generate 31.02% return on investment over 90 days.

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

Us Large Cap  vs.  Dfa Five Year Global

Us Large Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Us Large Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Us Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Us Large and Dfa Five

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

The idea behind Us Large Cap and Dfa Five Year Global 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.