Correlation Between Dfa - and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Dfa - 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 - 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 and Emerging Markets Targeted, you can compare the effects of market volatilities on Dfa - 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 - with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa - and Emerging Markets.
Diversification Opportunities for Dfa - and Emerging Markets
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dfa and Emerging is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Dfa International and Emerging Markets Targeted in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Targeted and Dfa - 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 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 Targeted has no effect on the direction of Dfa - i.e., Dfa - and Emerging Markets go up and down completely randomly.
Pair Corralation between Dfa - and Emerging Markets
Assuming the 90 days horizon Dfa International is expected to under-perform the Emerging Markets. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dfa International is 1.06 times less risky than Emerging Markets. The mutual fund trades about -0.18 of its potential returns per unit of risk. The Emerging Markets Targeted is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest 1,198 in Emerging Markets Targeted on August 28, 2024 and sell it today you would lose (31.00) from holding Emerging Markets Targeted or give up 2.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dfa International vs. Emerging Markets Targeted
Performance |
| Timeline |
| Dfa International |
| Emerging Markets Targeted |
Dfa - and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dfa - and Emerging Markets
The main advantage of trading using opposite Dfa - and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa - 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.The idea behind Dfa International and Emerging Markets Targeted pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Emerging Markets vs. Intal High Relative | Emerging Markets vs. Dfa International | Emerging Markets vs. Dfa Inflation Protected | Emerging Markets 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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