Correlation Between Kinetics Small and Davis Opportunity

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

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

Diversification Opportunities for Kinetics Small and Davis Opportunity

0.5

Correlation Coefficient

Kinetics Small  Davis Opportunity

Very weak diversification

The 3 months correlation between Kinetics and Davis is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Davis Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Opportunity and Kinetics Small 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 Kinetics Small Cap are associated (or correlated) with Davis Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Opportunity has no effect on the direction of Kinetics Small i.e., Kinetics Small and Davis Opportunity go up and down completely randomly.

Pair Corralation between Kinetics Small and Davis Opportunity

Assuming the 90 days horizon Kinetics Small Cap is expected to generate 0.8 times more return on investment than Davis Opportunity. However, Kinetics Small Cap is 1.25 times less risky than Davis Opportunity. It trades about -0.39 of its potential returns per unit of risk. Davis Opportunity is currently generating about -0.32 per unit of risk. If you would invest  22,492  in Kinetics Small Cap on October 4, 2024 and sell it today you would lose (4,426) from holding Kinetics Small Cap or give up 19.68% of portfolio value over 90 days.

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

Kinetics Small Cap  vs.  Davis Opportunity

Kinetics Small Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Small may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Davis Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Opportunity has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Kinetics Small and Davis Opportunity

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

The idea behind Kinetics Small Cap and Davis Opportunity 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.