Correlation Between Dfa World and Us Small

Can any of the company-specific risk be diversified away by investing in both Dfa World 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 World 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 World Ex and Us Small Cap, you can compare the effects of market volatilities on Dfa World 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 World with a short position of Us Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa World and Us Small.

Diversification Opportunities for Dfa World and Us Small

0.14

Correlation Coefficient

Dfa World  Us Small

Average diversification

The 3 months correlation between Dfa and DFSVX is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Dfa World Ex 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 World 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 World Ex 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 World i.e., Dfa World and Us Small go up and down completely randomly.

Pair Corralation between Dfa World and Us Small

Assuming the 90 days horizon Dfa World Ex is expected to generate 0.3 times more return on investment than Us Small. However, Dfa World Ex is 3.37 times less risky than Us Small. It trades about -0.01 of its potential returns per unit of risk. Us Small Cap is currently generating about -0.12 per unit of risk. If you would invest  841.00  in Dfa World Ex on December 29, 2024 and sell it today you would lose (2.00) from holding Dfa World Ex or give up 0.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Dfa World Ex  vs.  Us Small Cap

Dfa World Ex

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dfa World Ex has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Dfa World 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

Very Weak

Over the last 90 days Us Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Dfa World and Us Small

The main advantage of trading using opposite Dfa World and Us Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa World 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 World Ex 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.