Correlation Between Dfa Inflation and Dfa World

Can any of the company-specific risk be diversified away by investing in both Dfa Inflation and Dfa World 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 World 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 World Ex, you can compare the effects of market volatilities on Dfa Inflation and Dfa World 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 World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa Inflation and Dfa World.

Diversification Opportunities for Dfa Inflation and Dfa World

0.7

Correlation Coefficient

Dfa Inflation  Dfa World

Poor diversification

The 3 months correlation between Dfa and Dfa is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Inflation Protected and Dfa World Ex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa World Ex 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 World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa World Ex has no effect on the direction of Dfa Inflation i.e., Dfa Inflation and Dfa World go up and down completely randomly.

Pair Corralation between Dfa Inflation and Dfa World

Assuming the 90 days horizon Dfa Inflation is expected to generate 1.53 times less return on investment than Dfa World. But when comparing it to its historical volatility, Dfa Inflation Protected is 1.1 times less risky than Dfa World. It trades about 0.04 of its potential returns per unit of risk. Dfa World Ex is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  766.00  in Dfa World Ex on September 14, 2024 and sell it today you would earn a total of  85.00  from holding Dfa World Ex or generate 11.1% return on investment over 90 days.

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

Dfa Inflation Protected  vs.  Dfa World Ex

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.

Dfa World Ex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dfa World Ex has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Dfa World 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 World

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

The idea behind Dfa Inflation Protected and Dfa World Ex 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.