Correlation Between Dfa International and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Dfa International 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 International 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 International and Emerging Markets E, you can compare the effects of market volatilities on Dfa International 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 International with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dfa International and Emerging Markets.
Diversification Opportunities for Dfa International and Emerging Markets
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dfa and Emerging is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Dfa International and Emerging Markets E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets E and Dfa International 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 International 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 E has no effect on the direction of Dfa International i.e., Dfa International and Emerging Markets go up and down completely randomly.
Pair Corralation between Dfa International and Emerging Markets
Assuming the 90 days horizon Dfa International is expected to generate 2.91 times less return on investment than Emerging Markets. In addition to that, Dfa International is 1.22 times more volatile than Emerging Markets E. It trades about 0.06 of its total potential returns per unit of risk. Emerging Markets E is currently generating about 0.22 per unit of volatility. If you would invest 2,501 in Emerging Markets E on March 22, 2025 and sell it today you would earn a total of 67.00 from holding Emerging Markets E or generate 2.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dfa International vs. Emerging Markets E
Performance |
| Timeline |
| Dfa International |
| Emerging Markets E |
Dfa International and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dfa International and Emerging Markets
The main advantage of trading using opposite Dfa International and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dfa International 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.| Dfa International vs. Dfa Large | Dfa International vs. Dfa Small | Dfa International vs. Dfa International | Dfa International vs. Dfa Investment Grade |
| Emerging Markets vs. International E Equity | Emerging Markets vs. Dfa International Small | Emerging Markets vs. Us E Equity | Emerging Markets vs. Us Large Cap |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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