Correlation Between Versatile Bond and Dfa California

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

By analyzing existing cross correlation between Versatile Bond Portfolio and Dfa California Municipal, you can compare the effects of market volatilities on Versatile Bond and Dfa California 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 Versatile Bond with a short position of Dfa California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Versatile Bond and Dfa California.

Diversification Opportunities for Versatile Bond and Dfa California

0.37

Correlation Coefficient

Versatile Bond  Dfa California

Weak diversification

The 3 months correlation between Versatile and Dfa is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Versatile Bond Portfolio and Dfa California Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa California Municipal and Versatile Bond 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 Versatile Bond Portfolio are associated (or correlated) with Dfa California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa California Municipal has no effect on the direction of Versatile Bond i.e., Versatile Bond and Dfa California go up and down completely randomly.

Pair Corralation between Versatile Bond and Dfa California

Assuming the 90 days horizon Versatile Bond Portfolio is expected to generate 1.83 times more return on investment than Dfa California. However, Versatile Bond is 1.83 times more volatile than Dfa California Municipal. It trades about 0.14 of its potential returns per unit of risk. Dfa California Municipal is currently generating about 0.2 per unit of risk. If you would invest  6,400  in Versatile Bond Portfolio on September 3, 2024 and sell it today you would earn a total of  70.00  from holding Versatile Bond Portfolio or generate 1.09% return on investment over 90 days.

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

Versatile Bond Portfolio  vs.  Dfa California Municipal

Versatile Bond Portfolio

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Versatile Bond Portfolio are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Versatile Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dfa California Municipal

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa California Municipal are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Dfa California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Versatile Bond and Dfa California

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

The idea behind Versatile Bond Portfolio and Dfa California Municipal 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.