Correlation Between Davis Financial and Gmo Core

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

Diversification Opportunities for Davis Financial and Gmo Core

-0.75

Correlation Coefficient

Davis Financial  Gmo Core

Pay attention - limited upside

The 3 months correlation between Davis and Gmo is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Gmo E Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo E Plus 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 Gmo Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo E Plus has no effect on the direction of Davis Financial i.e., Davis Financial and Gmo Core go up and down completely randomly.

Pair Corralation between Davis Financial and Gmo Core

Assuming the 90 days horizon Davis Financial Fund is expected to generate 3.97 times more return on investment than Gmo Core. However, Davis Financial is 3.97 times more volatile than Gmo E Plus. It trades about 0.24 of its potential returns per unit of risk. Gmo E Plus is currently generating about -0.04 per unit of risk. If you would invest  6,293  in Davis Financial Fund on September 4, 2024 and sell it today you would earn a total of  786.00  from holding Davis Financial Fund or generate 12.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.62%
Values	Daily Returns

Davis Financial Fund  vs.  Gmo E Plus

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.

Gmo E Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo E Plus has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Gmo Core is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Davis Financial and Gmo Core

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

The idea behind Davis Financial Fund and Gmo E Plus 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.