Correlation Between Davis Select and IShares Russell

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

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

Diversification Opportunities for Davis Select and IShares Russell

-0.58

Correlation Coefficient

Davis Select  IShares Russell

Excellent diversification

The 3 months correlation between Davis and IShares is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Davis Select International and iShares Russell Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell Mid and Davis Select 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 Davis Select International are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell Mid has no effect on the direction of Davis Select i.e., Davis Select and IShares Russell go up and down completely randomly.

Pair Corralation between Davis Select and IShares Russell

Given the investment horizon of 90 days Davis Select International is expected to under-perform the IShares Russell. But the etf apears to be less risky and, when comparing its historical volatility, Davis Select International is 1.48 times less risky than IShares Russell. The etf trades about -0.46 of its potential returns per unit of risk. The iShares Russell Mid Cap is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  13,547  in iShares Russell Mid Cap on October 8, 2024 and sell it today you would lose (558.00) from holding iShares Russell Mid Cap or give up 4.12% of portfolio value over 90 days.

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

Davis Select International  vs.  iShares Russell Mid Cap

Davis Select Interna

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Select International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

iShares Russell Mid

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell Mid Cap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Davis Select and IShares Russell

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

The idea behind Davis Select International and iShares Russell Mid Cap 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.