Correlation Between Dfa California and Large Cap

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

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

Diversification Opportunities for Dfa California and Large Cap

0.77

Correlation Coefficient

Dfa California  Large Cap

Poor diversification

The 3 months correlation between Dfa and Large is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Dfa California Municipal and Large Cap International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap International and Dfa California 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 California Municipal are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap International has no effect on the direction of Dfa California i.e., Dfa California and Large Cap go up and down completely randomly.

Pair Corralation between Dfa California and Large Cap

Assuming the 90 days horizon Dfa California is expected to generate 5.16 times less return on investment than Large Cap. But when comparing it to its historical volatility, Dfa California Municipal is 12.85 times less risky than Large Cap. It trades about 0.35 of its potential returns per unit of risk. Large Cap International is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,989  in Large Cap International on May 10, 2025 and sell it today you would earn a total of  188.00  from holding Large Cap International or generate 6.29% return on investment over 90 days.

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

Dfa California Municipal  vs.  Large Cap International

Dfa California Municipal

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa California Municipal are ranked lower than 27 (%) 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.

Large Cap International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap International are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Dfa California and Large Cap

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

The idea behind Dfa California Municipal and Large Cap International 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.