Correlation Between Dfa Municipal and Emerging Markets

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

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

Diversification Opportunities for Dfa Municipal and Emerging Markets

0.9

Correlation Coefficient

Dfa Municipal  Emerging Markets

Almost no diversification

The 3 months correlation between Dfa and Emerging is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Municipal Real and Emerging Markets Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Value and Dfa Municipal 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 Municipal Real are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Value has no effect on the direction of Dfa Municipal i.e., Dfa Municipal and Emerging Markets go up and down completely randomly.

Pair Corralation between Dfa Municipal and Emerging Markets

Assuming the 90 days horizon Dfa Municipal is expected to generate 11.48 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Dfa Municipal Real is 10.1 times less risky than Emerging Markets. It trades about 0.32 of its potential returns per unit of risk. Emerging Markets Value is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  2,999  in Emerging Markets Value on April 23, 2025 and sell it today you would earn a total of  476.00  from holding Emerging Markets Value or generate 15.87% return on investment over 90 days.

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

Dfa Municipal Real  vs.  Emerging Markets Value

Dfa Municipal Real

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Municipal Real are ranked lower than 25 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Dfa Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerging Markets Value

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Value are ranked lower than 28 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Emerging Markets showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dfa Municipal and Emerging Markets

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

The idea behind Dfa Municipal Real and Emerging Markets Value 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.