Correlation Between Davis Real and Specialized Technology

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

By analyzing existing cross correlation between Davis Real Estate and Specialized Technology Fund, you can compare the effects of market volatilities on Davis Real and Specialized Technology 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 Real with a short position of Specialized Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Real and Specialized Technology.

Diversification Opportunities for Davis Real and Specialized Technology

0.73

Correlation Coefficient

Davis Real  Specialized Technology

Poor diversification

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

Pair Corralation between Davis Real and Specialized Technology

Assuming the 90 days horizon Davis Real Estate is expected to under-perform the Specialized Technology. But the mutual fund apears to be less risky and, when comparing its historical volatility, Davis Real Estate is 1.26 times less risky than Specialized Technology. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Specialized Technology Fund is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,271  in Specialized Technology Fund on October 10, 2024 and sell it today you would lose (98.00) from holding Specialized Technology Fund or give up 7.71% of portfolio value over 90 days.

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

Davis Real Estate  vs.  Specialized Technology Fund

Davis Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Real Estate has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Specialized Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Specialized Technology Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Davis Real and Specialized Technology

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

The idea behind Davis Real Estate and Specialized Technology Fund 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.