Correlation Between Davis Financial and Davis Government

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

Diversification Opportunities for Davis Financial and Davis Government

-0.38

Correlation Coefficient

Davis Financial  Davis Government

Very good diversification

The 3 months correlation between Davis and Davis is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Davis Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Government Bond 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 Davis Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Government Bond has no effect on the direction of Davis Financial i.e., Davis Financial and Davis Government go up and down completely randomly.

Pair Corralation between Davis Financial and Davis Government

Assuming the 90 days horizon Davis Financial Fund is expected to generate 13.65 times more return on investment than Davis Government. However, Davis Financial is 13.65 times more volatile than Davis Government Bond. It trades about 0.33 of its potential returns per unit of risk. Davis Government Bond is currently generating about 0.08 per unit of risk. If you would invest  6,393  in Davis Financial Fund on September 5, 2024 and sell it today you would earn a total of  686.00  from holding Davis Financial Fund or generate 10.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Davis Financial Fund  vs.  Davis Government Bond

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.

Davis Government Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Government Bond has generated negative risk-adjusted returns adding no value to fund investors. 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.

Pair Trading with Davis Financial and Davis Government

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

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