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 Small, 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
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and Dfa is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets E and Dfa International Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa International Small 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 Small 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. But the mutual fund apears to be less risky and, when comparing its historical volatility, Emerging Markets E is 1.11 times less risky than Dfa International. The mutual fund trades about -0.19 of its potential returns per unit of risk. The Dfa International Small is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 2,291 in Dfa International Small on August 30, 2024 and sell it today you would lose (37.00) from holding Dfa International Small or give up 1.62% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets E vs. Dfa International Small
Performance |
| Timeline |
| Emerging Markets E |
| Dfa International Small |
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. Dfa International Value | Dfa International vs. International Small Pany | Dfa International vs. Us Large Cap | Dfa International vs. Us Small Cap |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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