Correlation Between Dfa World and Arrow Managed

Can any of the company-specific risk be diversified away by investing in both Dfa World and Arrow Managed 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 Arrow Managed 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 Arrow Managed Futures, you can compare the effects of market volatilities on Dfa World and Arrow Managed 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 Arrow Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa World and Arrow Managed.

Diversification Opportunities for Dfa World and Arrow Managed

0.63

Correlation Coefficient

Dfa World  Arrow Managed

Poor diversification

The 3 months correlation between Dfa and Arrow is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dfa World Ex and Arrow Managed Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Managed Futures 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 Arrow Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Managed Futures has no effect on the direction of Dfa World i.e., Dfa World and Arrow Managed go up and down completely randomly.

Pair Corralation between Dfa World and Arrow Managed

Assuming the 90 days horizon Dfa World Ex is expected to under-perform the Arrow Managed. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dfa World Ex is 6.28 times less risky than Arrow Managed. The mutual fund trades about -0.59 of its potential returns per unit of risk. The Arrow Managed Futures is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  572.00  in Arrow Managed Futures on October 9, 2024 and sell it today you would lose (3.00) from holding Arrow Managed Futures or give up 0.52% of portfolio value over 90 days.

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

Dfa World Ex  vs.  Arrow Managed Futures

Dfa World Ex

Risk-Adjusted Performance

0 of 100

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.

Arrow Managed Futures

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow Managed Futures are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Arrow Managed 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 World and Arrow Managed

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

The idea behind Dfa World Ex and Arrow Managed Futures 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.