Correlation Between Davis Select and FT Cboe

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

Diversification Opportunities for Davis Select and FT Cboe

0.8

Correlation Coefficient

Davis Select  FT Cboe

Very poor diversification

The 3 months correlation between Davis and DJUL is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Davis Select Equity and FT Cboe Vest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FT Cboe Vest 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 Cboe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FT Cboe Vest has no effect on the direction of Davis Select i.e., Davis Select and FT Cboe go up and down completely randomly.

Pair Corralation between Davis Select and FT Cboe

Given the investment horizon of 90 days Davis Select Equity is expected to generate 1.62 times more return on investment than FT Cboe. However, Davis Select is 1.62 times more volatile than FT Cboe Vest. It trades about 0.0 of its potential returns per unit of risk. FT Cboe Vest is currently generating about -0.09 per unit of risk. If you would invest  4,271  in Davis Select Equity on December 17, 2024 and sell it today you would lose (14.00) from holding Davis Select Equity or give up 0.33% of portfolio value over 90 days.

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

Davis Select Equity  vs.  FT Cboe Vest

Davis Select Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Davis Select Equity has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Cboe Vest

Risk-Adjusted Performance

Very Weak

Over the last 90 days FT Cboe Vest has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, FT Cboe is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Davis Select and FT Cboe

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

The idea behind Davis Select Equity and FT Cboe Vest 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.