Correlation Between Dfa Inflation and Dfa World
Can any of the company-specific risk be diversified away by investing in both Dfa Inflation 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 Dfa Inflation and Dfa World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dfa Inflation Protected and Dfa World Ex, you can compare the effects of market volatilities on Dfa Inflation 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 Dfa Inflation with a short position of Dfa World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa Inflation and Dfa World.
Diversification Opportunities for Dfa Inflation and Dfa World
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dfa and Dfa is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Inflation Protected 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 Dfa Inflation 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 Inflation Protected 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 Dfa Inflation i.e., Dfa Inflation and Dfa World go up and down completely randomly.
Pair Corralation between Dfa Inflation and Dfa World
Assuming the 90 days horizon Dfa Inflation Protected is expected to generate 0.86 times more return on investment than Dfa World. However, Dfa Inflation Protected is 1.16 times less risky than Dfa World. It trades about 0.04 of its potential returns per unit of risk. Dfa World Ex is currently generating about 0.02 per unit of risk. If you would invest 1,060 in Dfa Inflation Protected on September 14, 2024 and sell it today you would earn a total of 32.00 from holding Dfa Inflation Protected or generate 3.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dfa Inflation Protected vs. Dfa World Ex
Performance |
| Timeline |
| Dfa Inflation Protected |
| Dfa World Ex |
Dfa Inflation and Dfa World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dfa Inflation and Dfa World
The main advantage of trading using opposite Dfa Inflation and Dfa World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa Inflation 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.| Dfa Inflation vs. International E Equity | Dfa Inflation vs. Dfa Real Estate | Dfa Inflation vs. Emerging Markets E | Dfa Inflation vs. Dfa Five Year Global |
| 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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