Correlation Between Davenport Small and First Eagle

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

Diversification Opportunities for Davenport Small and First Eagle

0.75

Correlation Coefficient

Davenport Small  First Eagle

Poor diversification

The 3 months correlation between Davenport and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Davenport Small Cap and First Eagle Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Eagle Fund 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 First Eagle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Eagle Fund has no effect on the direction of Davenport Small i.e., Davenport Small and First Eagle go up and down completely randomly.

Pair Corralation between Davenport Small and First Eagle

Assuming the 90 days horizon Davenport Small Cap is expected to generate 1.98 times more return on investment than First Eagle. However, Davenport Small is 1.98 times more volatile than First Eagle Fund. It trades about 0.16 of its potential returns per unit of risk. First Eagle Fund is currently generating about 0.11 per unit of risk. If you would invest  1,702  in Davenport Small Cap on August 31, 2024 and sell it today you would earn a total of  192.00  from holding Davenport Small Cap or generate 11.28% return on investment over 90 days.

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

Davenport Small Cap  vs.  First Eagle Fund

Davenport Small Cap

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davenport Small Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Davenport Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

First Eagle Fund

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Eagle Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, First Eagle is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Davenport Small and First Eagle

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

The idea behind Davenport Small Cap and First Eagle 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.