Correlation Between Davis Real and Materials Portfolio

Can any of the company-specific risk be diversified away by investing in both Davis Real and Materials Portfolio 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 Materials Portfolio 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 Materials Portfolio Fidelity, you can compare the effects of market volatilities on Davis Real and Materials Portfolio 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 Materials Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Real and Materials Portfolio.

Diversification Opportunities for Davis Real and Materials Portfolio

0.92

Correlation Coefficient

Davis Real  Materials Portfolio

Almost no diversification

The 3 months correlation between Davis and Materials is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Davis Real Estate and Materials Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Portfolio 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 Materials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Portfolio has no effect on the direction of Davis Real i.e., Davis Real and Materials Portfolio go up and down completely randomly.

Pair Corralation between Davis Real and Materials Portfolio

Assuming the 90 days horizon Davis Real Estate is expected to generate 1.04 times more return on investment than Materials Portfolio. However, Davis Real is 1.04 times more volatile than Materials Portfolio Fidelity. It trades about 0.02 of its potential returns per unit of risk. Materials Portfolio Fidelity is currently generating about -0.01 per unit of risk. If you would invest  4,005  in Davis Real Estate on October 3, 2024 and sell it today you would earn a total of  261.00  from holding Davis Real Estate or generate 6.52% return on investment over 90 days.

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

Davis Real Estate  vs.  Materials Portfolio Fidelity

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 basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Materials Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Portfolio Fidelity 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 February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Davis Real and Materials Portfolio

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

The idea behind Davis Real Estate and Materials Portfolio Fidelity 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.