Can any of the company-specific risk be diversified away by investing in both DFA International and GLOBAL REAL 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 GLOBAL REAL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DFA International Real and GLOBAL REAL ESTATE, you can compare the effects of market volatilities on DFA International and GLOBAL REAL 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 GLOBAL REAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of DFA International and GLOBAL REAL.
Diversification Opportunities for DFA International and GLOBAL REAL
The 3 months correlation between DFA and GLOBAL is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding DFA International Real and GLOBAL REAL ESTATE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GLOBAL REAL ESTATE 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 Real are associated (or correlated) with GLOBAL REAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GLOBAL REAL ESTATE has no effect on the direction of DFA International i.e., DFA International and GLOBAL REAL go up and down completely randomly.
Pair Corralation between DFA International and GLOBAL REAL
Assuming the 90 days horizon DFA International is expected to generate 7.08 times less return on investment than GLOBAL REAL. But when comparing it to its historical volatility, DFA International Real is 1.02 times less risky than GLOBAL REAL. It trades about 0.02 of its potential returns per unit of risk. GLOBAL REAL ESTATE is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 1,131 in GLOBAL REAL ESTATE on June 23, 2023 and sell it today you would earn a total of 27.00 from holding GLOBAL REAL ESTATE or generate 2.39% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in DFA International Real are ranked lower than 1 (%) 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 newest stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in GLOBAL REAL ESTATE are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, GLOBAL REAL is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.
DFA International and GLOBAL REAL Volatility Contrast
Predicted Return Density
Pair Trading with DFA International and GLOBAL REAL
The main advantage of trading using opposite DFA International and GLOBAL REAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DFA International position performs unexpectedly, GLOBAL REAL 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 GLOBAL REAL will offset losses from the drop in GLOBAL REAL's long position.
The idea behind DFA International Real and GLOBAL REAL ESTATE 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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