Correlation Between Davis Government and Europac Gold

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

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

Diversification Opportunities for Davis Government and Europac Gold

-0.58

Correlation Coefficient

Davis Government  Europac Gold

Excellent diversification

The 3 months correlation between Davis and Europac is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Davis Government Bond and Europac Gold Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europac Gold and Davis Government 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 Government Bond are associated (or correlated) with Europac Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europac Gold has no effect on the direction of Davis Government i.e., Davis Government and Europac Gold go up and down completely randomly.

Pair Corralation between Davis Government and Europac Gold

Assuming the 90 days horizon Davis Government is expected to generate 2.48 times less return on investment than Europac Gold. But when comparing it to its historical volatility, Davis Government Bond is 12.39 times less risky than Europac Gold. It trades about 0.11 of its potential returns per unit of risk. Europac Gold Fund is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  873.00  in Europac Gold Fund on October 25, 2024 and sell it today you would earn a total of  98.00  from holding Europac Gold Fund or generate 11.23% return on investment over 90 days.

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

Davis Government Bond  vs.  Europac Gold Fund

Davis Government Bond

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Government Bond are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davis Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Europac Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Europac Gold Fund 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 technical and fundamental 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 Davis Government and Europac Gold

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

The idea behind Davis Government Bond and Europac Gold 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.