Correlation Between Dfa Inflation and Dfa Municipal

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

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

Diversification Opportunities for Dfa Inflation and Dfa Municipal

0.84

Correlation Coefficient

Dfa Inflation  Dfa Municipal

Very poor diversification

The 3 months correlation between Dfa and Dfa is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Inflation Protected and Dfa Municipal Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Municipal Real and Dfa Inflation 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 Inflation Protected are associated (or correlated) with Dfa Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Municipal Real has no effect on the direction of Dfa Inflation i.e., Dfa Inflation and Dfa Municipal go up and down completely randomly.

Pair Corralation between Dfa Inflation and Dfa Municipal

Assuming the 90 days horizon Dfa Inflation Protected is expected to generate 1.58 times more return on investment than Dfa Municipal. However, Dfa Inflation is 1.58 times more volatile than Dfa Municipal Real. It trades about 0.08 of its potential returns per unit of risk. Dfa Municipal Real is currently generating about 0.0 per unit of risk. If you would invest  1,094  in Dfa Inflation Protected on November 28, 2024 and sell it today you would earn a total of  13.00  from holding Dfa Inflation Protected or generate 1.19% return on investment over 90 days.

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

Dfa Inflation Protected  vs.  Dfa Municipal Real

Dfa Inflation Protected

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Inflation Protected are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. 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.

Dfa Municipal Real

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dfa Municipal Real has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Dfa Municipal 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 Inflation and Dfa Municipal

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

The idea behind Dfa Inflation Protected and Dfa Municipal Real 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.