Correlation Between Davis Financial and Northern Global

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

Diversification Opportunities for Davis Financial and Northern Global

0.62

Correlation Coefficient

Davis Financial  Northern Global

Poor diversification

The 3 months correlation between Davis and Northern is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Northern Global Sustainability in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Global Sust 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 Northern Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Global Sust has no effect on the direction of Davis Financial i.e., Davis Financial and Northern Global go up and down completely randomly.

Pair Corralation between Davis Financial and Northern Global

Assuming the 90 days horizon Davis Financial Fund is expected to generate 1.31 times more return on investment than Northern Global. However, Davis Financial is 1.31 times more volatile than Northern Global Sustainability. It trades about 0.04 of its potential returns per unit of risk. Northern Global Sustainability is currently generating about -0.07 per unit of risk. If you would invest  6,282  in Davis Financial Fund on September 28, 2024 and sell it today you would earn a total of  183.00  from holding Davis Financial Fund or generate 2.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Davis Financial Fund  vs.  Northern Global Sustainability

Davis Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Davis Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Northern Global Sust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Global Sustainability has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Northern Global 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 Northern Global

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

The idea behind Davis Financial Fund and Northern Global Sustainability 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.