Correlation Between Dfa International and Dfa Investment

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

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

Diversification Opportunities for Dfa International and Dfa Investment

0.71

Correlation Coefficient

Dfa International  Dfa Investment

Poor diversification

The 3 months correlation between Dfa and Dfa is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Dfa International Small and Dfa Investment Grade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Investment Grade and Dfa International 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 Small are associated (or correlated) with Dfa Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Investment Grade has no effect on the direction of Dfa International i.e., Dfa International and Dfa Investment go up and down completely randomly.

Pair Corralation between Dfa International and Dfa Investment

Assuming the 90 days horizon Dfa International is expected to generate 1.2 times less return on investment than Dfa Investment. In addition to that, Dfa International is 2.73 times more volatile than Dfa Investment Grade. It trades about 0.06 of its total potential returns per unit of risk. Dfa Investment Grade is currently generating about 0.21 per unit of volatility. If you would invest  1,003  in Dfa Investment Grade on September 13, 2024 and sell it today you would earn a total of  13.00  from holding Dfa Investment Grade or generate 1.3% return on investment over 90 days.

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

Dfa International Small  vs.  Dfa Investment Grade

Dfa International Small

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dfa Investment Grade

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dfa International and Dfa Investment

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

The idea behind Dfa International Small and Dfa Investment Grade 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.