Correlation Between Global Equity and Dfa Selectively

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

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

Diversification Opportunities for Global Equity and Dfa Selectively

0.99

Correlation Coefficient

Global Equity  Dfa Selectively

No risk reduction

The 3 months correlation between Global and Dfa is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Global Equity Portfolio and Dfa Selectively Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Selectively Hedged and Global Equity 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 Global Equity Portfolio are associated (or correlated) with Dfa Selectively. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Selectively Hedged has no effect on the direction of Global Equity i.e., Global Equity and Dfa Selectively go up and down completely randomly.

Pair Corralation between Global Equity and Dfa Selectively

Assuming the 90 days horizon Global Equity Portfolio is expected to under-perform the Dfa Selectively. In addition to that, Global Equity is 1.08 times more volatile than Dfa Selectively Hedged. It trades about -0.04 of its total potential returns per unit of risk. Dfa Selectively Hedged is currently generating about -0.02 per unit of volatility. If you would invest  2,122  in Dfa Selectively Hedged on December 28, 2024 and sell it today you would lose (31.00) from holding Dfa Selectively Hedged or give up 1.46% of portfolio value over 90 days.

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

Global Equity Portfolio  vs.  Dfa Selectively Hedged

Global Equity Portfolio

Risk-Adjusted Performance

Very Weak

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

Dfa Selectively Hedged

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Global Equity and Dfa Selectively

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

The idea behind Global Equity Portfolio and Dfa Selectively Hedged 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.