Correlation Between Davis Select and FT Vest

Can any of the company-specific risk be diversified away by investing in both Davis Select and FT Vest 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 Select and FT Vest into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Davis Select Equity and FT Vest Equity, you can compare the effects of market volatilities on Davis Select and FT Vest 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 Select with a short position of FT Vest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Select and FT Vest.

Diversification Opportunities for Davis Select and FT Vest

0.72

Correlation Coefficient

Davis Select  FT Vest

Poor diversification

The 3 months correlation between Davis and DHDG is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Davis Select Equity and FT Vest Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FT Vest Equity and Davis Select 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 Select Equity are associated (or correlated) with FT Vest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FT Vest Equity has no effect on the direction of Davis Select i.e., Davis Select and FT Vest go up and down completely randomly.

Pair Corralation between Davis Select and FT Vest

Given the investment horizon of 90 days Davis Select Equity is expected to under-perform the FT Vest. In addition to that, Davis Select is 1.35 times more volatile than FT Vest Equity. It trades about -0.17 of its total potential returns per unit of risk. FT Vest Equity is currently generating about -0.1 per unit of volatility. If you would invest  3,106  in FT Vest Equity on October 11, 2024 and sell it today you would lose (42.00) from holding FT Vest Equity or give up 1.35% of portfolio value over 90 days.

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

Davis Select Equity  vs.  FT Vest Equity

Davis Select Equity

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select Equity are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Davis Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

FT Vest Equity

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FT Vest Equity are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, FT Vest is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Davis Select and FT Vest

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

The idea behind Davis Select Equity and FT Vest Equity 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.