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 Value and Dfa International Value, 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
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerging and Dfa is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Value and Dfa International Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa International Value 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 Value 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 Value 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 Value is expected to generate 1.06 times more return on investment than Dfa International. However, Emerging Markets is 1.06 times more volatile than Dfa International Value. It trades about -0.13 of its potential returns per unit of risk. Dfa International Value is currently generating about -0.19 per unit of risk. If you would invest 3,093 in Emerging Markets Value on September 19, 2024 and sell it today you would lose (54.00) from holding Emerging Markets Value or give up 1.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerging Markets Value vs. Dfa International Value
Performance |
| Timeline |
| Emerging Markets Value |
| Dfa International Value |
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. Dfa International Small | Emerging Markets vs. International Small Pany | Emerging Markets vs. Emerging Markets Small | Emerging Markets vs. Dfa International Value |
| Dfa International vs. Intal High Relative | Dfa International vs. Dfa International | Dfa International vs. Dfa Inflation Protected | 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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