Correlation Between Dfa Municipal and World Core

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

Diversification Opportunities for Dfa Municipal and World Core

0.85

Correlation Coefficient

Dfa Municipal  World Core

Very poor diversification

The 3 months correlation between Dfa and World is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Municipal Real 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 Municipal 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 Municipal Real 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 Municipal i.e., Dfa Municipal and World Core go up and down completely randomly.

Pair Corralation between Dfa Municipal and World Core

Assuming the 90 days horizon Dfa Municipal is expected to generate 6.93 times less return on investment than World Core. But when comparing it to its historical volatility, Dfa Municipal Real is 10.15 times less risky than World Core. It trades about 0.23 of its potential returns per unit of risk. World Core Equity is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,407  in World Core Equity on September 4, 2024 and sell it today you would earn a total of  156.00  from holding World Core Equity or generate 6.48% return on investment over 90 days.

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

Dfa Municipal Real  vs.  World Core Equity

Dfa Municipal Real

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Municipal Real are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Dfa Municipal 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

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in World Core Equity are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, World Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dfa Municipal and World Core

The main advantage of trading using opposite Dfa Municipal and World Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa Municipal 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 Municipal Real 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.