Correlation Between Dfa - and Dfa Large
Can any of the company-specific risk be diversified away by investing in both Dfa - and Dfa Large 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 Dfa Large into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dfa International and Dfa Large, you can compare the effects of market volatilities on Dfa - and Dfa Large 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 Dfa Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa - and Dfa Large.
Diversification Opportunities for Dfa - and Dfa Large
Poor diversification
The 3 months correlation between Dfa and Dfa is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Dfa International and Dfa Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Large 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 Dfa Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Large has no effect on the direction of Dfa - i.e., Dfa - and Dfa Large go up and down completely randomly.
Pair Corralation between Dfa - and Dfa Large
Assuming the 90 days horizon Dfa International is expected to under-perform the Dfa Large. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dfa International is 1.12 times less risky than Dfa Large. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Dfa Large is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 3,805 in Dfa Large on November 1, 2024 and sell it today you would earn a total of 149.00 from holding Dfa Large or generate 3.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dfa International vs. Dfa Large
Performance |
| Timeline |
| Dfa International |
| Dfa Large |
Dfa - and Dfa Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dfa - and Dfa Large
The main advantage of trading using opposite Dfa - and Dfa Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa - position performs unexpectedly, Dfa Large 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 Large will offset losses from the drop in Dfa Large's long position.The idea behind Dfa International and Dfa Large 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.| Dfa Large vs. Dfa Small | Dfa Large vs. Dfa International | Dfa Large vs. Us Large Cap | Dfa Large vs. Dfa International |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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