Correlation Between Dfa Target and Dfa Inv

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

By analyzing existing cross correlation between Dfa Target Value and Dfa Inv Dimensions, you can compare the effects of market volatilities on Dfa Target and Dfa Inv 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 Target with a short position of Dfa Inv. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa Target and Dfa Inv.

Diversification Opportunities for Dfa Target and Dfa Inv

1.0

Correlation Coefficient

Dfa Target  Dfa Inv

No risk reduction

The 3 months correlation between Dfa and Dfa is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Target Value and Dfa Inv Dimensions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Inv Dimensions and Dfa Target 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 Target Value are associated (or correlated) with Dfa Inv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Inv Dimensions has no effect on the direction of Dfa Target i.e., Dfa Target and Dfa Inv go up and down completely randomly.

Pair Corralation between Dfa Target and Dfa Inv

Assuming the 90 days horizon Dfa Target is expected to generate 1.02 times less return on investment than Dfa Inv. But when comparing it to its historical volatility, Dfa Target Value is 1.0 times less risky than Dfa Inv. It trades about 0.02 of its potential returns per unit of risk. Dfa Inv Dimensions is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,712  in Dfa Inv Dimensions on January 20, 2024 and sell it today you would earn a total of  108.00  from holding Dfa Inv Dimensions or generate 3.98% return on investment over 90 days.

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

Dfa Target Value  vs.  Dfa Inv Dimensions

Dfa Target Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dfa Target Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dfa Target is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dfa Inv Dimensions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dfa Inv Dimensions has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dfa Inv 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 Target and Dfa Inv

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

The idea behind Dfa Target Value and Dfa Inv Dimensions 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.