Correlation Between Dfa - and Dfa Small

Can any of the company-specific risk be diversified away by investing in both Dfa - and Dfa Small 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 Small 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 Small, you can compare the effects of market volatilities on Dfa - and Dfa Small 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 Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa - and Dfa Small.

Diversification Opportunities for Dfa - and Dfa Small

-0.51

Correlation Coefficient

Dfa -  Dfa Small

Excellent diversification

The 3 months correlation between Dfa and Dfa is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Dfa International and Dfa Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Small 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 Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Small has no effect on the direction of Dfa - i.e., Dfa - and Dfa Small go up and down completely randomly.

Pair Corralation between Dfa - and Dfa Small

Assuming the 90 days horizon Dfa International is expected to under-perform the Dfa Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dfa International is 1.26 times less risky than Dfa Small. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Dfa Small is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,751  in Dfa Small on September 3, 2024 and sell it today you would earn a total of  367.00  from holding Dfa Small or generate 13.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Dfa International  vs.  Dfa Small

Dfa International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dfa International has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dfa - is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dfa Small

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Small are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Dfa Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dfa - and Dfa Small

The main advantage of trading using opposite Dfa - and Dfa Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa - position performs unexpectedly, Dfa Small 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 Small will offset losses from the drop in Dfa Small's long position.

The idea behind Dfa International and Dfa Small 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.

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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.