Correlation Between Davidson Multi-cap and Bright Rock

Can any of the company-specific risk be diversified away by investing in both Davidson Multi-cap and Bright Rock 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 Davidson Multi-cap and Bright Rock into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Davidson Multi Cap Equity and Bright Rock Mid, you can compare the effects of market volatilities on Davidson Multi-cap and Bright Rock 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 Davidson Multi-cap with a short position of Bright Rock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davidson Multi-cap and Bright Rock.

Diversification Opportunities for Davidson Multi-cap and Bright Rock

0.31

Correlation Coefficient

Davidson Multi-cap  Bright Rock

Weak diversification

The 3 months correlation between Davidson and Bright is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Davidson Multi Cap Equity and Bright Rock Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Rock Mid and Davidson Multi-cap 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 Davidson Multi Cap Equity are associated (or correlated) with Bright Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Rock Mid has no effect on the direction of Davidson Multi-cap i.e., Davidson Multi-cap and Bright Rock go up and down completely randomly.

Pair Corralation between Davidson Multi-cap and Bright Rock

Assuming the 90 days horizon Davidson Multi Cap Equity is expected to generate 0.8 times more return on investment than Bright Rock. However, Davidson Multi Cap Equity is 1.26 times less risky than Bright Rock. It trades about -0.03 of its potential returns per unit of risk. Bright Rock Mid is currently generating about -0.2 per unit of risk. If you would invest  3,544  in Davidson Multi Cap Equity on December 2, 2024 and sell it today you would lose (63.00) from holding Davidson Multi Cap Equity or give up 1.78% of portfolio value over 90 days.

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

Davidson Multi Cap Equity  vs.  Bright Rock Mid

Davidson Multi Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Davidson Multi Cap Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Davidson Multi-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bright Rock Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bright Rock Mid has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Davidson Multi-cap and Bright Rock

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

The idea behind Davidson Multi Cap Equity and Bright Rock Mid 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.