Correlation Between Davenport Small and Spectrum Fund

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

Diversification Opportunities for Davenport Small and Spectrum Fund

0.89

Correlation Coefficient

Davenport Small  Spectrum Fund

Very poor diversification

The 3 months correlation between Davenport and Spectrum is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Davenport Small Cap and Spectrum Fund Adviser in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectrum Fund Adviser 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 Spectrum Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectrum Fund Adviser has no effect on the direction of Davenport Small i.e., Davenport Small and Spectrum Fund go up and down completely randomly.

Pair Corralation between Davenport Small and Spectrum Fund

Assuming the 90 days horizon Davenport Small Cap is expected to generate 1.5 times more return on investment than Spectrum Fund. However, Davenport Small is 1.5 times more volatile than Spectrum Fund Adviser. It trades about 0.17 of its potential returns per unit of risk. Spectrum Fund Adviser is currently generating about 0.15 per unit of risk. If you would invest  1,706  in Davenport Small Cap on September 4, 2024 and sell it today you would earn a total of  201.00  from holding Davenport Small Cap or generate 11.78% return on investment over 90 days.

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

Davenport Small Cap  vs.  Spectrum Fund Adviser

Davenport Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davenport Small Cap are ranked lower than 13 (%) 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 January 2025.

Spectrum Fund Adviser

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Davenport Small and Spectrum Fund

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

The idea behind Davenport Small Cap and Spectrum Fund Adviser 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.