Correlation Between Emerging Markets and Dfa World
Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Dfa World 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 World 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 World Ex, you can compare the effects of market volatilities on Emerging Markets and Dfa World 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 World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Dfa World.
Diversification Opportunities for Emerging Markets and Dfa World
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Emerging and Dfa is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets E and Dfa World Ex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa World Ex 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 World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa World Ex has no effect on the direction of Emerging Markets i.e., Emerging Markets and Dfa World go up and down completely randomly.
Pair Corralation between Emerging Markets and Dfa World
Assuming the 90 days horizon Emerging Markets is expected to generate 1.05 times less return on investment than Dfa World. In addition to that, Emerging Markets is 1.02 times more volatile than Dfa World Ex. It trades about 0.08 of its total potential returns per unit of risk. Dfa World Ex is currently generating about 0.09 per unit of volatility. If you would invest 1,234 in Dfa World Ex on September 4, 2024 and sell it today you would earn a total of 237.00 from holding Dfa World Ex or generate 19.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets E vs. Dfa World Ex
Performance |
| Timeline |
| Emerging Markets E |
| Dfa World Ex |
Emerging Markets and Dfa World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerging Markets and Dfa World
The main advantage of trading using opposite Emerging Markets and Dfa World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Dfa World 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 World will offset losses from the drop in Dfa World'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 World vs. Intal High Relative | Dfa World vs. Dfa International | Dfa World vs. Dfa Inflation Protected | Dfa World 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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