Correlation Between Davenport Core and Davenport Value

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

By analyzing existing cross correlation between Davenport E Fund and Davenport Value Income, you can compare the effects of market volatilities on Davenport Core and Davenport Value 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 Davenport Core with a short position of Davenport Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davenport Core and Davenport Value.

Diversification Opportunities for Davenport Core and Davenport Value

0.76

Correlation Coefficient

Davenport Core  Davenport Value

Poor diversification

The 3 months correlation between Davenport and Davenport is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Davenport E Fund and Davenport Value Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davenport Value Income and Davenport Core 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 Davenport E Fund are associated (or correlated) with Davenport Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davenport Value Income has no effect on the direction of Davenport Core i.e., Davenport Core and Davenport Value go up and down completely randomly.

Pair Corralation between Davenport Core and Davenport Value

Assuming the 90 days horizon Davenport E Fund is expected to generate 1.32 times more return on investment than Davenport Value. However, Davenport Core is 1.32 times more volatile than Davenport Value Income. It trades about 0.19 of its potential returns per unit of risk. Davenport Value Income is currently generating about 0.16 per unit of risk. If you would invest  3,543  in Davenport E Fund on September 2, 2024 and sell it today you would earn a total of  320.00  from holding Davenport E Fund or generate 9.03% return on investment over 90 days.

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

Davenport E Fund  vs.  Davenport Value Income

Davenport E Fund

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davenport E Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Davenport Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Davenport Value Income

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davenport Value Income are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davenport Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Davenport Core and Davenport Value

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

The idea behind Davenport E Fund and Davenport Value Income 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.