Correlation Between Dfa Targeted and Us Small

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

By analyzing existing cross correlation between Dfa Targeted Credit and Us Small Cap, you can compare the effects of market volatilities on Dfa Targeted and Us Small 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 Targeted with a short position of Us Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa Targeted and Us Small.

Diversification Opportunities for Dfa Targeted and Us Small

0.78

Correlation Coefficient

Dfa Targeted  Us Small

Poor diversification

The 3 months correlation between DFA and DFSVX is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Targeted Credit and Us Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Small Cap and Dfa Targeted 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 Targeted Credit are associated (or correlated) with Us Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Small Cap has no effect on the direction of Dfa Targeted i.e., Dfa Targeted and Us Small go up and down completely randomly.

Pair Corralation between Dfa Targeted and Us Small

Assuming the 90 days horizon Dfa Targeted is expected to generate 8.33 times less return on investment than Us Small. But when comparing it to its historical volatility, Dfa Targeted Credit is 26.25 times less risky than Us Small. It trades about 0.43 of its potential returns per unit of risk. Us Small Cap is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4,742  in Us Small Cap on September 1, 2024 and sell it today you would earn a total of  544.00  from holding Us Small Cap or generate 11.47% return on investment over 90 days.

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

Dfa Targeted Credit  vs.  Us Small Cap

Dfa Targeted Credit

Risk-Adjusted Performance

33 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Targeted Credit are ranked lower than 33 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Dfa Targeted is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Us Small Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Us Small Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Us Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Dfa Targeted and Us Small

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

The idea behind Dfa Targeted Credit and Us Small Cap 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.