Correlation Between Davenport Small and Amer Beacon

Can any of the company-specific risk be diversified away by investing in both Davenport Small and Amer Beacon 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 Davenport Small and Amer Beacon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Davenport Small Cap and Amer Beacon Ark, you can compare the effects of market volatilities on Davenport Small and Amer Beacon 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 Davenport Small with a short position of Amer Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davenport Small and Amer Beacon.

Diversification Opportunities for Davenport Small and Amer Beacon

0.4

Correlation Coefficient

Davenport Small  Amer Beacon

Very weak diversification

The 3 months correlation between Davenport and Amer is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Davenport Small Cap and Amer Beacon Ark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amer Beacon Ark and Davenport Small 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 Davenport Small Cap are associated (or correlated) with Amer Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amer Beacon Ark has no effect on the direction of Davenport Small i.e., Davenport Small and Amer Beacon go up and down completely randomly.

Pair Corralation between Davenport Small and Amer Beacon

Assuming the 90 days horizon Davenport Small is expected to generate 7.52 times less return on investment than Amer Beacon. But when comparing it to its historical volatility, Davenport Small Cap is 2.28 times less risky than Amer Beacon. It trades about 0.05 of its potential returns per unit of risk. Amer Beacon Ark is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,307  in Amer Beacon Ark on October 24, 2024 and sell it today you would earn a total of  386.00  from holding Amer Beacon Ark or generate 29.53% return on investment over 90 days.

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

Davenport Small Cap  vs.  Amer Beacon Ark

Davenport Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Davenport Small Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davenport Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Amer Beacon Ark

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amer Beacon Ark are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Amer Beacon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Davenport Small and Amer Beacon

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

The idea behind Davenport Small Cap and Amer Beacon Ark 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.