Correlation Between Dfa Municipal and Dfa Investment

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

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

Diversification Opportunities for Dfa Municipal and Dfa Investment

0.88

Correlation Coefficient

Dfa Municipal  Dfa Investment

Very poor diversification

The 3 months correlation between Dfa and Dfa is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Municipal Real and Dfa Investment Grade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Investment Grade and Dfa Municipal 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 Municipal Real are associated (or correlated) with Dfa Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Investment Grade has no effect on the direction of Dfa Municipal i.e., Dfa Municipal and Dfa Investment go up and down completely randomly.

Pair Corralation between Dfa Municipal and Dfa Investment

Assuming the 90 days horizon Dfa Municipal is expected to generate 1.72 times less return on investment than Dfa Investment. But when comparing it to its historical volatility, Dfa Municipal Real is 5.89 times less risky than Dfa Investment. It trades about 0.41 of its potential returns per unit of risk. Dfa Investment Grade is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  985.00  in Dfa Investment Grade on December 26, 2024 and sell it today you would earn a total of  22.00  from holding Dfa Investment Grade or generate 2.23% return on investment over 90 days.

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

Dfa Municipal Real  vs.  Dfa Investment Grade

Dfa Municipal Real

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Municipal Real are ranked lower than 32 (%) of all funds and portfolios of funds over the last 90 days. 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.

Dfa Investment Grade

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Investment Grade are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Dfa Investment 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 Municipal and Dfa Investment

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

The idea behind Dfa Municipal Real and Dfa Investment Grade 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.