Correlation Between Emerging Markets and Dfa International
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Dfa International 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 Emerging Markets and Dfa International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets E and Dfa International Real, you can compare the effects of market volatilities on Emerging Markets and Dfa International 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 Emerging Markets with a short position of Dfa International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Dfa International.
Diversification Opportunities for Emerging Markets and Dfa International
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Emerging and DFA is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets E and Dfa International Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa International Real and Emerging Markets 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 Emerging Markets E are associated (or correlated) with Dfa International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa International Real has no effect on the direction of Emerging Markets i.e., Emerging Markets and Dfa International go up and down completely randomly.
Pair Corralation between Emerging Markets and Dfa International
Assuming the 90 days horizon Emerging Markets E is expected to under-perform the Dfa International. In addition to that, Emerging Markets is 1.02 times more volatile than Dfa International Real. It trades about -0.09 of its total potential returns per unit of risk. Dfa International Real is currently generating about -0.05 per unit of volatility. If you would invest 374.00 in Dfa International Real on September 1, 2024 and sell it today you would lose (3.00) from holding Dfa International Real or give up 0.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets E vs. Dfa International Real
Performance |
| Timeline |
| Emerging Markets E |
| Dfa International Real |
Emerging Markets and Dfa International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Dfa International
The main advantage of trading using opposite Emerging Markets and Dfa International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Dfa International 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 Dfa International will offset losses from the drop in Dfa International's long position.| Emerging Markets vs. International E Equity | Emerging Markets vs. Dfa International Small | Emerging Markets vs. Us E Equity | Emerging Markets vs. Us Large Cap |
| Dfa International vs. International E Equity | Dfa International vs. Emerging Markets E | Dfa International vs. Us E Equity | Dfa International vs. Dfa International Small |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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