Correlation Between Davis Financial and Vanguard Emerging

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

Diversification Opportunities for Davis Financial and Vanguard Emerging

0.46

Correlation Coefficient

Davis Financial  Vanguard Emerging

Very weak diversification

The 3 months correlation between Davis and Vanguard is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Vanguard Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Emerging Markets 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 Vanguard Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Emerging Markets has no effect on the direction of Davis Financial i.e., Davis Financial and Vanguard Emerging go up and down completely randomly.

Pair Corralation between Davis Financial and Vanguard Emerging

Assuming the 90 days horizon Davis Financial is expected to generate 2.36 times less return on investment than Vanguard Emerging. In addition to that, Davis Financial is 1.13 times more volatile than Vanguard Emerging Markets. It trades about 0.04 of its total potential returns per unit of risk. Vanguard Emerging Markets is currently generating about 0.12 per unit of volatility. If you would invest  2,136  in Vanguard Emerging Markets on December 20, 2024 and sell it today you would earn a total of  151.00  from holding Vanguard Emerging Markets or generate 7.07% return on investment over 90 days.

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

Davis Financial Fund  vs.  Vanguard Emerging Markets

Davis Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 3 (%) 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.

Vanguard Emerging Markets

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Emerging Markets are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Emerging may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Davis Financial and Vanguard Emerging

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

The idea behind Davis Financial Fund and Vanguard Emerging Markets 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 Stocks Directory module to find actively traded stocks across global markets.