Correlation Between World Energy and Dfa Large

Can any of the company-specific risk be diversified away by investing in both World Energy 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 World Energy and Dfa Large into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between World Energy Fund and Dfa Large, you can compare the effects of market volatilities on World Energy 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 World Energy with a short position of Dfa Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Energy and Dfa Large.

Diversification Opportunities for World Energy and Dfa Large

0.83

Correlation Coefficient

World Energy  Dfa Large

Very poor diversification

The 3 months correlation between World and Dfa is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and Dfa Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Large and World Energy 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 World Energy Fund 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 World Energy i.e., World Energy and Dfa Large go up and down completely randomly.

Pair Corralation between World Energy and Dfa Large

Assuming the 90 days horizon World Energy Fund is expected to generate 1.64 times more return on investment than Dfa Large. However, World Energy is 1.64 times more volatile than Dfa Large. It trades about 0.05 of its potential returns per unit of risk. Dfa Large is currently generating about 0.03 per unit of risk. If you would invest  1,378  in World Energy Fund on September 24, 2024 and sell it today you would earn a total of  47.00  from holding World Energy Fund or generate 3.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

World Energy Fund  vs.  Dfa Large

World Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in World Energy Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, World Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dfa Large

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Large are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Dfa Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with World Energy and Dfa Large

The main advantage of trading using opposite World Energy and Dfa Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Energy 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 World Energy Fund 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.