Correlation Between Asia Pacific and Dfa Inflation

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

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

Diversification Opportunities for Asia Pacific and Dfa Inflation

0.8

Correlation Coefficient

Asia Pacific  Dfa Inflation

Very poor diversification

The 3 months correlation between Asia and Dfa is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Asia Pacific Small and Dfa Inflation Protected in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Inflation Protected and Asia Pacific 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 Asia Pacific Small are associated (or correlated) with Dfa Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Inflation Protected has no effect on the direction of Asia Pacific i.e., Asia Pacific and Dfa Inflation go up and down completely randomly.

Pair Corralation between Asia Pacific and Dfa Inflation

Assuming the 90 days horizon Asia Pacific is expected to generate 1.03 times less return on investment than Dfa Inflation. In addition to that, Asia Pacific is 3.21 times more volatile than Dfa Inflation Protected. It trades about 0.01 of its total potential returns per unit of risk. Dfa Inflation Protected is currently generating about 0.05 per unit of volatility. If you would invest  1,033  in Dfa Inflation Protected on September 23, 2024 and sell it today you would earn a total of  42.00  from holding Dfa Inflation Protected or generate 4.07% return on investment over 90 days.

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

Asia Pacific Small  vs.  Dfa Inflation Protected

Asia Pacific Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asia Pacific Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Dfa Inflation Protected

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Asia Pacific and Dfa Inflation

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

The idea behind Asia Pacific Small and Dfa Inflation Protected 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.