Correlation Between Dfa - and Emerging Markets

Can any of the company-specific risk be diversified away by investing in both Dfa - 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 - 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 International and Emerging Markets Small, you can compare the effects of market volatilities on Dfa - 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 - with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa - and Emerging Markets.

Diversification Opportunities for Dfa - and Emerging Markets

0.95

Correlation Coefficient

Dfa -  Emerging Markets

Almost no diversification

The 3 months correlation between Dfa and Emerging is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Dfa International and Emerging Markets Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Small and Dfa - 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 International 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 Small has no effect on the direction of Dfa - i.e., Dfa - and Emerging Markets go up and down completely randomly.

Pair Corralation between Dfa - and Emerging Markets

Assuming the 90 days horizon Dfa International is expected to under-perform the Emerging Markets. In addition to that, Dfa - is 1.15 times more volatile than Emerging Markets Small. It trades about -0.37 of its total potential returns per unit of risk. Emerging Markets Small is currently generating about -0.34 per unit of volatility. If you would invest  2,406  in Emerging Markets Small on October 5, 2024 and sell it today you would lose (91.00) from holding Emerging Markets Small or give up 3.78% of portfolio value over 90 days.

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

Dfa International  vs.  Emerging Markets Small

Dfa International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Emerging Markets Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerging Markets 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.

Pair Trading with Dfa - and Emerging Markets

The main advantage of trading using opposite Dfa - and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa - 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 International and Emerging Markets Small 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.