Correlation Between Davis Financial and Davidson Multi-cap

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

Diversification Opportunities for Davis Financial and Davidson Multi-cap

0.89

Correlation Coefficient

Davis Financial  Davidson Multi-cap

Very poor diversification

The 3 months correlation between Davis and Davidson is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Davidson Multi Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davidson Multi Cap 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 Davidson Multi-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davidson Multi Cap has no effect on the direction of Davis Financial i.e., Davis Financial and Davidson Multi-cap go up and down completely randomly.

Pair Corralation between Davis Financial and Davidson Multi-cap

Assuming the 90 days horizon Davis Financial Fund is expected to generate 1.74 times more return on investment than Davidson Multi-cap. However, Davis Financial is 1.74 times more volatile than Davidson Multi Cap Equity. It trades about 0.2 of its potential returns per unit of risk. Davidson Multi Cap Equity is currently generating about 0.19 per unit of risk. If you would invest  6,145  in Davis Financial Fund on September 5, 2024 and sell it today you would earn a total of  934.00  from holding Davis Financial Fund or generate 15.2% return on investment over 90 days.

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

Davis Financial Fund  vs.  Davidson Multi Cap Equity

Davis Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 15 (%) 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.

Davidson Multi Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davidson Multi Cap Equity are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Davidson Multi-cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Davis Financial and Davidson Multi-cap

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

The idea behind Davis Financial Fund and Davidson Multi Cap Equity 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.

Check out your portfolio center.

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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.