Correlation Between Davis Financial and Aqr Style

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

Diversification Opportunities for Davis Financial and Aqr Style

0.35

Correlation Coefficient

Davis Financial  Aqr Style

Weak diversification

The 3 months correlation between Davis and Aqr is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Aqr Style Premia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Style Premia 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 Aqr Style. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Style Premia has no effect on the direction of Davis Financial i.e., Davis Financial and Aqr Style go up and down completely randomly.

Pair Corralation between Davis Financial and Aqr Style

Assuming the 90 days horizon Davis Financial is expected to generate 23.37 times less return on investment than Aqr Style. In addition to that, Davis Financial is 1.84 times more volatile than Aqr Style Premia. It trades about 0.01 of its total potential returns per unit of risk. Aqr Style Premia is currently generating about 0.31 per unit of volatility. If you would invest  743.00  in Aqr Style Premia on December 1, 2024 and sell it today you would earn a total of  83.00  from holding Aqr Style Premia or generate 11.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Davis Financial Fund  vs.  Aqr Style Premia

Davis Financial

Risk-Adjusted Performance

Very Weak

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

Aqr Style Premia

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aqr Style Premia are ranked lower than 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Aqr Style may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Davis Financial and Aqr Style

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

The idea behind Davis Financial Fund and Aqr Style Premia 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 Global Correlations module to find global opportunities by holding instruments from different markets.