Correlation Between Dfa Inflation and Asia Pacific

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

Diversification Opportunities for Dfa Inflation and Asia Pacific

0.9

Correlation Coefficient

Dfa Inflation  Asia Pacific

Almost no diversification

The 3 months correlation between Dfa and Asia is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Inflation Protected and Asia Pacific Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Pacific Small 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 Asia Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Pacific Small has no effect on the direction of Dfa Inflation i.e., Dfa Inflation and Asia Pacific go up and down completely randomly.

Pair Corralation between Dfa Inflation and Asia Pacific

Assuming the 90 days horizon Dfa Inflation Protected is expected to generate 0.28 times more return on investment than Asia Pacific. However, Dfa Inflation Protected is 3.55 times less risky than Asia Pacific. It trades about -0.22 of its potential returns per unit of risk. Asia Pacific Small is currently generating about -0.22 per unit of risk. If you would invest  1,117  in Dfa Inflation Protected on September 29, 2024 and sell it today you would lose (44.00) from holding Dfa Inflation Protected or give up 3.94% of portfolio value over 90 days.

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

Dfa Inflation Protected  vs.  Asia Pacific Small

Dfa Inflation Protected

Risk-Adjusted Performance

0 of 100

Very Weak

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

Asia Pacific Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asia Pacific Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Dfa Inflation and Asia Pacific

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

The idea behind Dfa Inflation Protected and Asia Pacific 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.