Correlation Between Dfa - and Us Lg
Can any of the company-specific risk be diversified away by investing in both Dfa - and Us Lg 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 Us Lg into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dfa Large and Us Lg Cap, you can compare the effects of market volatilities on Dfa - and Us Lg 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 Us Lg. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa - and Us Lg.
Diversification Opportunities for Dfa - and Us Lg
Almost no diversification
The 3 months correlation between Dfa and DUSQX is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Large and Us Lg Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Lg Cap 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 Large are associated (or correlated) with Us Lg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Lg Cap has no effect on the direction of Dfa - i.e., Dfa - and Us Lg go up and down completely randomly.
Pair Corralation between Dfa - and Us Lg
Assuming the 90 days horizon Dfa - is expected to generate 1.35 times less return on investment than Us Lg. But when comparing it to its historical volatility, Dfa Large is 1.02 times less risky than Us Lg. It trades about 0.14 of its potential returns per unit of risk. Us Lg Cap is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 3,221 in Us Lg Cap on August 27, 2024 and sell it today you would earn a total of 106.00 from holding Us Lg Cap or generate 3.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dfa Large vs. Us Lg Cap
Performance |
| Timeline |
| Dfa Large |
| Us Lg Cap |
Dfa - and Us Lg Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dfa - and Us Lg
The main advantage of trading using opposite Dfa - and Us Lg positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa - position performs unexpectedly, Us Lg 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 Us Lg will offset losses from the drop in Us Lg's long position.The idea behind Dfa Large and Us Lg Cap 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.| Us Lg vs. Us Micro Cap | Us Lg vs. Dfa Short Term Government | Us Lg vs. Emerging Markets Small | Us Lg vs. Aquagold 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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