Correlation Between Dfa World and Dfa Municipal

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Can any of the company-specific risk be diversified away by investing in both Dfa World and Dfa Municipal 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 World and Dfa Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dfa World Ex and Dfa Municipal Real, you can compare the effects of market volatilities on Dfa World and Dfa Municipal 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 World with a short position of Dfa Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa World and Dfa Municipal.

Diversification Opportunities for Dfa World and Dfa Municipal

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Dfa and Dfa is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dfa World Ex and Dfa Municipal Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Municipal Real and Dfa World 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 World Ex are associated (or correlated) with Dfa Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Municipal Real has no effect on the direction of Dfa World i.e., Dfa World and Dfa Municipal go up and down completely randomly.

Pair Corralation between Dfa World and Dfa Municipal

Assuming the 90 days horizon Dfa World Ex is expected to generate 3.5 times more return on investment than Dfa Municipal. However, Dfa World is 3.5 times more volatile than Dfa Municipal Real. It trades about 0.12 of its potential returns per unit of risk. Dfa Municipal Real is currently generating about 0.16 per unit of risk. If you would invest  846.00  in Dfa World Ex on July 12, 2025 and sell it today you would earn a total of  12.00  from holding Dfa World Ex or generate 1.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy98.44%
ValuesDaily Returns

Dfa World Ex  vs.  Dfa Municipal Real

 Performance 
       Timeline  
Dfa World Ex 

Risk-Adjusted Performance

Fair

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Dfa World Ex are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Dfa World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Dfa Municipal Real 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Municipal Real are ranked lower than 12 (%) 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.

Dfa World and Dfa Municipal Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dfa World and Dfa Municipal

The main advantage of trading using opposite Dfa World and Dfa Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa World position performs unexpectedly, Dfa Municipal 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 Municipal will offset losses from the drop in Dfa Municipal's long position.
The idea behind Dfa World Ex and Dfa Municipal Real 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.
Check out your portfolio center.
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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