Correlation Between Dfa Municipal and Intermediate Government

Can any of the company-specific risk be diversified away by investing in both Dfa Municipal and Intermediate Government 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 Intermediate Government 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 Intermediate Government Bond, you can compare the effects of market volatilities on Dfa Municipal and Intermediate Government 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 Intermediate Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa Municipal and Intermediate Government.

Diversification Opportunities for Dfa Municipal and Intermediate Government

0.72

Correlation Coefficient

Dfa Municipal  Intermediate Government

Poor diversification

The 3 months correlation between Dfa and Intermediate is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Municipal Real and Intermediate Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Government 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 Intermediate Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Government has no effect on the direction of Dfa Municipal i.e., Dfa Municipal and Intermediate Government go up and down completely randomly.

Pair Corralation between Dfa Municipal and Intermediate Government

Assuming the 90 days horizon Dfa Municipal Real is expected to generate 0.58 times more return on investment than Intermediate Government. However, Dfa Municipal Real is 1.74 times less risky than Intermediate Government. It trades about 0.2 of its potential returns per unit of risk. Intermediate Government Bond is currently generating about 0.06 per unit of risk. If you would invest  1,076  in Dfa Municipal Real on May 3, 2025 and sell it today you would earn a total of  9.00  from holding Dfa Municipal Real or generate 0.84% return on investment over 90 days.

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

Dfa Municipal Real  vs.  Intermediate Government Bond

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 15 (%) 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.

Intermediate Government

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Government Bond are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Intermediate Government 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 Municipal and Intermediate Government

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

The idea behind Dfa Municipal Real and Intermediate Government Bond 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.