Correlation Between Dfa International and Dfa One-year

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

By analyzing existing cross correlation between Dfa International Small and Dfa One Year Fixed, you can compare the effects of market volatilities on Dfa International and Dfa One-year 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 International with a short position of Dfa One-year. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa International and Dfa One-year.

Diversification Opportunities for Dfa International and Dfa One-year

0.55

Correlation Coefficient

Dfa International  Dfa One-year

Very weak diversification

The 3 months correlation between Dfa and Dfa is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Dfa International Small and Dfa One Year Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa One Year and Dfa International 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 Small are associated (or correlated) with Dfa One-year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa One Year has no effect on the direction of Dfa International i.e., Dfa International and Dfa One-year go up and down completely randomly.

Pair Corralation between Dfa International and Dfa One-year

Assuming the 90 days horizon Dfa International Small is expected to generate 10.79 times more return on investment than Dfa One-year. However, Dfa International is 10.79 times more volatile than Dfa One Year Fixed. It trades about 0.09 of its potential returns per unit of risk. Dfa One Year Fixed is currently generating about 0.19 per unit of risk. If you would invest  2,248  in Dfa International Small on December 1, 2024 and sell it today you would earn a total of  90.00  from holding Dfa International Small or generate 4.0% return on investment over 90 days.

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

Dfa International Small  vs.  Dfa One Year Fixed

Dfa International Small

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa International Small are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Dfa International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dfa One Year

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa One Year Fixed are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Dfa One-year 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 International and Dfa One-year

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

The idea behind Dfa International Small and Dfa One Year Fixed 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.