Correlation Between World Core and Dfa International

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

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

Diversification Opportunities for World Core and Dfa International

0.83

Correlation Coefficient

World Core  Dfa International

Very poor diversification

The 3 months correlation between World and Dfa is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding World Core Equity and Dfa International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa International and World Core 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 World Core Equity are associated (or correlated) with Dfa International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa International has no effect on the direction of World Core i.e., World Core and Dfa International go up and down completely randomly.

Pair Corralation between World Core and Dfa International

Assuming the 90 days horizon World Core Equity is expected to under-perform the Dfa International. In addition to that, World Core is 1.02 times more volatile than Dfa International. It trades about -0.05 of its total potential returns per unit of risk. Dfa International is currently generating about 0.03 per unit of volatility. If you would invest  1,531  in Dfa International on November 28, 2024 and sell it today you would earn a total of  20.00  from holding Dfa International or generate 1.31% return on investment over 90 days.

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

World Core Equity  vs.  Dfa International

World Core Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days World Core Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, World Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dfa International

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa International are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Dfa International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with World Core and Dfa International

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

The idea behind World Core Equity and Dfa International 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 Valuation module to check real value of public entities based on technical and fundamental data.