Correlation Between Davis Financial and Caldwell Orkin

Can any of the company-specific risk be diversified away by investing in both Davis Financial and Caldwell Orkin 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 Caldwell Orkin 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 Caldwell Orkin Market, you can compare the effects of market volatilities on Davis Financial and Caldwell Orkin 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 Caldwell Orkin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Financial and Caldwell Orkin.

Diversification Opportunities for Davis Financial and Caldwell Orkin

0.97

Correlation Coefficient

Davis Financial  Caldwell Orkin

Almost no diversification

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

Pair Corralation between Davis Financial and Caldwell Orkin

Assuming the 90 days horizon Davis Financial is expected to generate 2.09 times less return on investment than Caldwell Orkin. But when comparing it to its historical volatility, Davis Financial Fund is 1.07 times less risky than Caldwell Orkin. It trades about 0.09 of its potential returns per unit of risk. Caldwell Orkin Market is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,488  in Caldwell Orkin Market on September 16, 2024 and sell it today you would earn a total of  719.00  from holding Caldwell Orkin Market or generate 16.02% 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.  Caldwell Orkin Market

Davis Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Davis Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Caldwell Orkin Market

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caldwell Orkin Market 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, Caldwell Orkin showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Davis Financial and Caldwell Orkin

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

The idea behind Davis Financial Fund and Caldwell Orkin Market 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.