Correlation Between Dfa International and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Dfa International and Emerging Markets 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 International and Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dfa International Value and Emerging Markets Value, you can compare the effects of market volatilities on Dfa International and Emerging Markets 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 International with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa International and Emerging Markets.
Diversification Opportunities for Dfa International and Emerging Markets
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dfa and Emerging is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Dfa International Value and Emerging Markets Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Value and Dfa International 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 International Value are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Value has no effect on the direction of Dfa International i.e., Dfa International and Emerging Markets go up and down completely randomly.
Pair Corralation between Dfa International and Emerging Markets
Assuming the 90 days horizon Dfa International Value is expected to generate 1.02 times more return on investment than Emerging Markets. However, Dfa International is 1.02 times more volatile than Emerging Markets Value. It trades about 0.03 of its potential returns per unit of risk. Emerging Markets Value is currently generating about -0.08 per unit of risk. If you would invest 2,122 in Dfa International Value on September 1, 2024 and sell it today you would earn a total of 12.00 from holding Dfa International Value or generate 0.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dfa International Value vs. Emerging Markets Value
Performance |
| Timeline |
| Dfa International Value |
| Emerging Markets Value |
Dfa International and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dfa International and Emerging Markets
The main advantage of trading using opposite Dfa International and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa International position performs unexpectedly, Emerging Markets 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 Emerging Markets will offset losses from the drop in Emerging Markets' long position.| Dfa International vs. Us Large Cap | Dfa International vs. Dfa International Small | Dfa International vs. International Small Pany | Dfa International vs. Dfa Five Year Global |
| Emerging Markets vs. Dfa International Small | Emerging Markets vs. International Small Pany | Emerging Markets vs. Emerging Markets Small | Emerging Markets vs. Dfa International Value |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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