Correlation Between Davis Financial and Aggressive Investors

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

By analyzing existing cross correlation between Davis Financial Fund and Aggressive Investors 1, you can compare the effects of market volatilities on Davis Financial and Aggressive Investors 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 Financial with a short position of Aggressive Investors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Financial and Aggressive Investors.

Diversification Opportunities for Davis Financial and Aggressive Investors

0.97

Correlation Coefficient

Davis Financial  Aggressive Investors

Almost no diversification

The 3 months correlation between Davis and Aggressive is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Aggressive Investors 1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aggressive Investors and Davis Financial 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 Financial Fund are associated (or correlated) with Aggressive Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aggressive Investors has no effect on the direction of Davis Financial i.e., Davis Financial and Aggressive Investors go up and down completely randomly.

Pair Corralation between Davis Financial and Aggressive Investors

Assuming the 90 days horizon Davis Financial is expected to generate 1.15 times less return on investment than Aggressive Investors. In addition to that, Davis Financial is 1.33 times more volatile than Aggressive Investors 1. It trades about 0.19 of its total potential returns per unit of risk. Aggressive Investors 1 is currently generating about 0.29 per unit of volatility. If you would invest  8,818  in Aggressive Investors 1 on September 13, 2024 and sell it today you would earn a total of  1,452  from holding Aggressive Investors 1 or generate 16.47% return on investment over 90 days.

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

Davis Financial Fund  vs.  Aggressive Investors 1

Davis Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Davis Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Aggressive Investors

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Investors 1 are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Aggressive Investors showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Davis Financial and Aggressive Investors

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

The idea behind Davis Financial Fund and Aggressive Investors 1 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.