Correlation Between Emerging Markets and Dfa International

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Can any of the company-specific risk be diversified away by investing in both Emerging Markets and Dfa International 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 Emerging Markets and Dfa International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerging Markets E and Dfa International Real, you can compare the effects of market volatilities on Emerging Markets and Dfa International 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 Emerging Markets with a short position of Dfa International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Dfa International.

Diversification Opportunities for Emerging Markets and Dfa International

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between EMERGING and Dfa is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets E and Dfa International Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa International Real and Emerging Markets 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 Emerging Markets E are associated (or correlated) with Dfa International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa International Real has no effect on the direction of Emerging Markets i.e., Emerging Markets and Dfa International go up and down completely randomly.

Pair Corralation between Emerging Markets and Dfa International

Assuming the 90 days horizon Emerging Markets is expected to generate 2.89 times less return on investment than Dfa International. But when comparing it to its historical volatility, Emerging Markets E is 1.26 times less risky than Dfa International. It trades about 0.04 of its potential returns per unit of risk. Dfa International Real is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  358.00  in Dfa International Real on April 23, 2024 and sell it today you would earn a total of  10.00  from holding Dfa International Real or generate 2.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Emerging Markets E  vs.  Dfa International Real

 Performance 
       Timeline  
Emerging Markets E 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets E are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Emerging Markets may actually be approaching a critical reversion point that can send shares even higher in August 2024.
Dfa International Real 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Dfa International Real are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. 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.

Emerging Markets and Dfa International Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Emerging Markets and Dfa International

The main advantage of trading using opposite Emerging Markets and Dfa International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets position performs unexpectedly, Dfa International 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 International will offset losses from the drop in Dfa International's long position.
The idea behind Emerging Markets E and Dfa International Real 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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