Correlation Between Dfa - and Us Large

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

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

Diversification Opportunities for Dfa - and Us Large

0.86

Correlation Coefficient

Dfa -  Us Large

Very poor diversification

The 3 months correlation between Dfa and DFLVX is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Small and Us Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Large Cap and Dfa - 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 Small are associated (or correlated) with Us Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Large Cap has no effect on the direction of Dfa - i.e., Dfa - and Us Large go up and down completely randomly.

Pair Corralation between Dfa - and Us Large

Assuming the 90 days horizon Dfa - is expected to generate 1.15 times less return on investment than Us Large. In addition to that, Dfa - is 1.54 times more volatile than Us Large Cap. It trades about 0.14 of its total potential returns per unit of risk. Us Large Cap is currently generating about 0.24 per unit of volatility. If you would invest  4,698  in Us Large Cap on July 7, 2024 and sell it today you would earn a total of  388.00  from holding Us Large Cap or generate 8.26% return on investment over 90 days.

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

Dfa Small  vs.  Us Large Cap

Dfa Small

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Small are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Dfa - may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Us Large Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Us Large Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Us Large may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Dfa - and Us Large

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

The idea behind Dfa Small and Us Large Cap 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.