Correlation Between Dfa Inflation and Global Equity

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

Diversification Opportunities for Dfa Inflation and Global Equity

-0.44

Correlation Coefficient

Dfa Inflation  Global Equity

Very good diversification

The 3 months correlation between Dfa and Global is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Inflation Protected and Global Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Equity Portfolio 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 Global Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Equity Portfolio has no effect on the direction of Dfa Inflation i.e., Dfa Inflation and Global Equity go up and down completely randomly.

Pair Corralation between Dfa Inflation and Global Equity

Assuming the 90 days horizon Dfa Inflation Protected is expected to under-perform the Global Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dfa Inflation Protected is 2.45 times less risky than Global Equity. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Global Equity Portfolio is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,394  in Global Equity Portfolio on September 3, 2024 and sell it today you would earn a total of  241.00  from holding Global Equity Portfolio or generate 7.1% return on investment over 90 days.

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

Dfa Inflation Protected  vs.  Global Equity Portfolio

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.

Global Equity Portfolio

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Equity Portfolio are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Global Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dfa Inflation and Global Equity

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

The idea behind Dfa Inflation Protected and Global Equity Portfolio 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.