Correlation Between Dfa Intl and Emerging Markets

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

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

Diversification Opportunities for Dfa Intl and Emerging Markets

0.46

Correlation Coefficient

Dfa Intl  Emerging Markets

Very weak diversification

The 3 months correlation between Dfa and Emerging is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Intl Sustainability and Emerging Markets Sustainabilit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Sus and Dfa Intl 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 Intl Sustainability are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Sus has no effect on the direction of Dfa Intl i.e., Dfa Intl and Emerging Markets go up and down completely randomly.

Pair Corralation between Dfa Intl and Emerging Markets

Assuming the 90 days horizon Dfa Intl Sustainability is expected to generate 1.21 times more return on investment than Emerging Markets. However, Dfa Intl is 1.21 times more volatile than Emerging Markets Sustainability. It trades about 0.23 of its potential returns per unit of risk. Emerging Markets Sustainability is currently generating about 0.14 per unit of risk. If you would invest  1,278  in Dfa Intl Sustainability on September 13, 2024 and sell it today you would earn a total of  34.00  from holding Dfa Intl Sustainability or generate 2.66% return on investment over 90 days.

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

Dfa Intl Sustainability  vs.  Emerging Markets Sustainabilit

Dfa Intl Sustainability

Risk-Adjusted Performance

0 of 100

Very Weak

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

Emerging Markets Sus

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Sustainability are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dfa Intl and Emerging Markets

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

The idea behind Dfa Intl Sustainability and Emerging Markets Sustainability 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.