Correlation Between Dimensional Core and Davis Select

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

By analyzing existing cross correlation between Dimensional Core Equity and Davis Select Equity, you can compare the effects of market volatilities on Dimensional Core and Davis Select 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 Dimensional Core with a short position of Davis Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dimensional Core and Davis Select.

Diversification Opportunities for Dimensional Core and Davis Select

0.73

Correlation Coefficient

Dimensional Core  Davis Select

Poor diversification

The 3 months correlation between Dimensional and Davis is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional Core Equity and Davis Select Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Equity and Dimensional 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 Dimensional Core Equity are associated (or correlated) with Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Equity has no effect on the direction of Dimensional Core i.e., Dimensional Core and Davis Select go up and down completely randomly.

Pair Corralation between Dimensional Core and Davis Select

Given the investment horizon of 90 days Dimensional Core Equity is expected to under-perform the Davis Select. But the etf apears to be less risky and, when comparing its historical volatility, Dimensional Core Equity is 1.0 times less risky than Davis Select. The etf trades about -0.08 of its potential returns per unit of risk. The Davis Select Equity is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,238  in Davis Select Equity on December 21, 2024 and sell it today you would earn a total of  51.00  from holding Davis Select Equity or generate 1.2% return on investment over 90 days.

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

Dimensional Core Equity  vs.  Davis Select Equity

Dimensional Core Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dimensional Core Equity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Dimensional Core is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Davis Select Equity

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select Equity are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Davis Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dimensional Core and Davis Select

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

The idea behind Dimensional Core Equity and Davis Select Equity 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.