Correlation Between Davis Select and IShares MSCI

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

By analyzing existing cross correlation between Davis Select Worldwide and iShares MSCI ACWI, you can compare the effects of market volatilities on Davis Select and IShares MSCI 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 IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Select and IShares MSCI.

Diversification Opportunities for Davis Select and IShares MSCI

0.7

Correlation Coefficient

Davis Select  IShares MSCI

Poor diversification

The 3 months correlation between Davis and IShares is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Davis Select Worldwide and iShares MSCI ACWI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI ACWI 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 Worldwide are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI ACWI has no effect on the direction of Davis Select i.e., Davis Select and IShares MSCI go up and down completely randomly.

Pair Corralation between Davis Select and IShares MSCI

Given the investment horizon of 90 days Davis Select is expected to generate 18.22 times less return on investment than IShares MSCI. In addition to that, Davis Select is 2.36 times more volatile than iShares MSCI ACWI. It trades about 0.01 of its total potential returns per unit of risk. iShares MSCI ACWI is currently generating about 0.35 per unit of volatility. If you would invest  11,923  in iShares MSCI ACWI on September 17, 2024 and sell it today you would earn a total of  308.00  from holding iShares MSCI ACWI or generate 2.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Davis Select Worldwide  vs.  iShares MSCI ACWI

Davis Select Worldwide

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select Worldwide are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent essential indicators, Davis Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares MSCI ACWI

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI ACWI are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, IShares MSCI is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Davis Select and IShares MSCI

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

The idea behind Davis Select Worldwide and iShares MSCI ACWI 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.