Correlation Between Davis Real and Nicholas Fund

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

Diversification Opportunities for Davis Real and Nicholas Fund

-0.29

Correlation Coefficient

Davis Real  Nicholas Fund

Very good diversification

The 3 months correlation between Davis and Nicholas is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Davis Real Estate and Nicholas Fund Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nicholas Fund 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 Nicholas Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nicholas Fund has no effect on the direction of Davis Real i.e., Davis Real and Nicholas Fund go up and down completely randomly.

Pair Corralation between Davis Real and Nicholas Fund

Assuming the 90 days horizon Davis Real Estate is expected to under-perform the Nicholas Fund. In addition to that, Davis Real is 1.21 times more volatile than Nicholas Fund Inc. It trades about -0.08 of its total potential returns per unit of risk. Nicholas Fund Inc is currently generating about 0.14 per unit of volatility. If you would invest  9,465  in Nicholas Fund Inc on September 18, 2024 and sell it today you would earn a total of  617.00  from holding Nicholas Fund Inc or generate 6.52% return on investment over 90 days.

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

Davis Real Estate  vs.  Nicholas Fund Inc

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 fairly strong basic indicators, Davis Real is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Nicholas Fund

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nicholas Fund Inc are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Nicholas Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Davis Real and Nicholas Fund

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

The idea behind Davis Real Estate and Nicholas Fund Inc 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.