Correlation Between Dfa International and World Core

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

Diversification Opportunities for Dfa International and World Core

0.02

Correlation Coefficient

Dfa International  World Core

Significant diversification

The 3 months correlation between Dfa and World is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Dfa International Small and World Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Core Equity 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 World Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Core Equity has no effect on the direction of Dfa International i.e., Dfa International and World Core go up and down completely randomly.

Pair Corralation between Dfa International and World Core

Assuming the 90 days horizon Dfa International Small is expected to under-perform the World Core. In addition to that, Dfa International is 1.3 times more volatile than World Core Equity. It trades about -0.01 of its total potential returns per unit of risk. World Core Equity is currently generating about 0.14 per unit of volatility. If you would invest  2,414  in World Core Equity on September 2, 2024 and sell it today you would earn a total of  145.00  from holding World Core Equity or generate 6.01% return on investment over 90 days.

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

Dfa International Small  vs.  World Core Equity

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.

World Core Equity

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in World Core Equity are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, World Core 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 World Core

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

The idea behind Dfa International Small and World Core Equity 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.