Correlation Between FT Vest and Davis Select

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

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

Diversification Opportunities for FT Vest and Davis Select

0.73

Correlation Coefficient

FT Vest  Davis Select

Poor diversification

The 3 months correlation between DHDG and Davis is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding FT Vest 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 FT Vest 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 FT Vest 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 FT Vest i.e., FT Vest and Davis Select go up and down completely randomly.

Pair Corralation between FT Vest and Davis Select

Given the investment horizon of 90 days FT Vest is expected to generate 5.43 times less return on investment than Davis Select. But when comparing it to its historical volatility, FT Vest Equity is 2.03 times less risky than Davis Select. It trades about 0.03 of its potential returns per unit of risk. Davis Select Equity is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,788  in Davis Select Equity on October 11, 2024 and sell it today you would earn a total of  1,474  from holding Davis Select Equity or generate 52.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	11.11%
Values	Daily Returns

FT Vest Equity  vs.  Davis Select Equity

FT Vest Equity

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FT Vest Equity are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, FT Vest is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Davis Select Equity

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select Equity are ranked lower than 3 (%) 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 FT Vest and Davis Select

The main advantage of trading using opposite FT Vest and Davis Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FT Vest 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 FT Vest 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.