Correlation Between Dfa California and Continental Small
Can any of the company-specific risk be diversified away by investing in both Dfa California and Continental 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 California and Continental Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dfa California Municipal and Continental Small Pany, you can compare the effects of market volatilities on Dfa California and Continental 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 California with a short position of Continental Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa California and Continental Small.
Diversification Opportunities for Dfa California and Continental Small
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dfa and Continental is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Dfa California Municipal and Continental Small Pany in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Continental Small Pany and Dfa California 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 California Municipal are associated (or correlated) with Continental Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Continental Small Pany has no effect on the direction of Dfa California i.e., Dfa California and Continental Small go up and down completely randomly.
Pair Corralation between Dfa California and Continental Small
Assuming the 90 days horizon Dfa California is expected to generate 1.98 times less return on investment than Continental Small. But when comparing it to its historical volatility, Dfa California Municipal is 12.26 times less risky than Continental Small. It trades about 0.17 of its potential returns per unit of risk. Continental Small Pany is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,753 in Continental Small Pany on August 31, 2024 and sell it today you would earn a total of 228.00 from holding Continental Small Pany or generate 8.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dfa California Municipal vs. Continental Small Pany
Performance |
| Timeline |
| Dfa California Municipal |
| Continental Small Pany |
Dfa California and Continental Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dfa California and Continental Small
The main advantage of trading using opposite Dfa California and Continental Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa California position performs unexpectedly, Continental 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 Continental Small will offset losses from the drop in Continental Small's long position.The idea behind Dfa California Municipal and Continental Small Pany 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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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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