Correlation Between Dfa Targeted and Dfa Emerging

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

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

Diversification Opportunities for Dfa Targeted and Dfa Emerging

0.96

Correlation Coefficient

Dfa Targeted  Dfa Emerging

Almost no diversification

The 3 months correlation between Dfa and Dfa is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Dfa Targeted Credit and Dfa Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Emerging Markets and Dfa Targeted 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 Targeted Credit are associated (or correlated) with Dfa Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Emerging Markets has no effect on the direction of Dfa Targeted i.e., Dfa Targeted and Dfa Emerging go up and down completely randomly.

Pair Corralation between Dfa Targeted and Dfa Emerging

Assuming the 90 days horizon Dfa Targeted is expected to generate 8.0 times less return on investment than Dfa Emerging. But when comparing it to its historical volatility, Dfa Targeted Credit is 10.59 times less risky than Dfa Emerging. It trades about 0.4 of its potential returns per unit of risk. Dfa Emerging Markets is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  1,480  in Dfa Emerging Markets on May 1, 2025 and sell it today you would earn a total of  208.00  from holding Dfa Emerging Markets or generate 14.05% return on investment over 90 days.

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

Dfa Targeted Credit  vs.  Dfa Emerging Markets

Dfa Targeted Credit

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Targeted Credit are ranked lower than 31 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Dfa Targeted is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dfa Emerging Markets

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Emerging Markets are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dfa Emerging showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dfa Targeted and Dfa Emerging

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

The idea behind Dfa Targeted Credit and Dfa Emerging Markets 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..