Correlation Between Davis Financial and Metropolitan West

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

By analyzing existing cross correlation between Davis Financial Fund and Metropolitan West High, you can compare the effects of market volatilities on Davis Financial and Metropolitan West 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 Financial with a short position of Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Financial and Metropolitan West.

Diversification Opportunities for Davis Financial and Metropolitan West

0.59

Correlation Coefficient

Davis Financial  Metropolitan West

Very weak diversification

The 3 months correlation between Davis and Metropolitan is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Metropolitan West High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West High and Davis Financial 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 Financial Fund are associated (or correlated) with Metropolitan West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan West High has no effect on the direction of Davis Financial i.e., Davis Financial and Metropolitan West go up and down completely randomly.

Pair Corralation between Davis Financial and Metropolitan West

Assuming the 90 days horizon Davis Financial Fund is expected to under-perform the Metropolitan West. In addition to that, Davis Financial is 6.13 times more volatile than Metropolitan West High. It trades about -0.14 of its total potential returns per unit of risk. Metropolitan West High is currently generating about -0.11 per unit of volatility. If you would invest  932.00  in Metropolitan West High on October 11, 2024 and sell it today you would lose (6.00) from holding Metropolitan West High or give up 0.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.56%
Values	Daily Returns

Davis Financial Fund  vs.  Metropolitan West High

Davis Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davis Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Metropolitan West High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan West High has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Metropolitan West is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Davis Financial and Metropolitan West

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

The idea behind Davis Financial Fund and Metropolitan West High 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 Global Correlations module to find global opportunities by holding instruments from different markets.