Correlation Between Davis Opportunity and Emerging Growth

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

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

Diversification Opportunities for Davis Opportunity and Emerging Growth

0.76

Correlation Coefficient

Davis Opportunity  Emerging Growth

Poor diversification

The 3 months correlation between Davis and Emerging is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Davis Opportunity and Emerging Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Growth and Davis Opportunity 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 Opportunity are associated (or correlated) with Emerging Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Growth has no effect on the direction of Davis Opportunity i.e., Davis Opportunity and Emerging Growth go up and down completely randomly.

Pair Corralation between Davis Opportunity and Emerging Growth

Assuming the 90 days horizon Davis Opportunity is expected to under-perform the Emerging Growth. In addition to that, Davis Opportunity is 2.92 times more volatile than Emerging Growth Fund. It trades about -0.23 of its total potential returns per unit of risk. Emerging Growth Fund is currently generating about 0.06 per unit of volatility. If you would invest  1,342  in Emerging Growth Fund on September 15, 2024 and sell it today you would earn a total of  17.00  from holding Emerging Growth Fund or generate 1.27% return on investment over 90 days.

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

Davis Opportunity  vs.  Emerging Growth Fund

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 latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Emerging Growth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Growth Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Emerging Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Davis Opportunity and Emerging Growth

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

The idea behind Davis Opportunity and Emerging Growth 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..