Correlation Between Total Return and Davis Financial

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

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

Diversification Opportunities for Total Return and Davis Financial

-0.03

Correlation Coefficient

Total Return  Davis Financial

Good diversification

The 3 months correlation between Total and Davis is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Total Return Bond and Davis Financial Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Financial and Total Return 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 Total Return Bond are associated (or correlated) with Davis Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Financial has no effect on the direction of Total Return i.e., Total Return and Davis Financial go up and down completely randomly.

Pair Corralation between Total Return and Davis Financial

Assuming the 90 days horizon Total Return Bond is expected to generate 0.18 times more return on investment than Davis Financial. However, Total Return Bond is 5.63 times less risky than Davis Financial. It trades about -0.55 of its potential returns per unit of risk. Davis Financial Fund is currently generating about -0.28 per unit of risk. If you would invest  1,143  in Total Return Bond on October 9, 2024 and sell it today you would lose (28.00) from holding Total Return Bond or give up 2.45% of portfolio value over 90 days.

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

Total Return Bond  vs.  Davis Financial Fund

Total Return Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Total Return and Davis Financial

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

The idea behind Total Return Bond and Davis Financial Fund 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.