Correlation Between Dfa Large and World Core

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

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

Diversification Opportunities for Dfa Large and World Core

0.92

Correlation Coefficient

Dfa Large  World Core

Almost no diversification

The 3 months correlation between Dfa and World is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Large and World Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Core Equity and Dfa Large 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 Large are associated (or correlated) with World Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Core Equity has no effect on the direction of Dfa Large i.e., Dfa Large and World Core go up and down completely randomly.

Pair Corralation between Dfa Large and World Core

Assuming the 90 days horizon Dfa Large is expected to under-perform the World Core. In addition to that, Dfa Large is 1.14 times more volatile than World Core Equity. It trades about -0.03 of its total potential returns per unit of risk. World Core Equity is currently generating about 0.01 per unit of volatility. If you would invest  2,426  in World Core Equity on December 28, 2024 and sell it today you would earn a total of  13.00  from holding World Core Equity or generate 0.54% return on investment over 90 days.

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

Dfa Large  vs.  World Core Equity

Dfa Large

Risk-Adjusted Performance

Very Weak

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

World Core Equity

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in World Core Equity are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with Dfa Large and World Core

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

The idea behind Dfa Large and World Core Equity 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.