Correlation Between Davis Financial and Mid Cap

Can any of the company-specific risk be diversified away by investing in both Davis Financial and Mid 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 Mid 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 Mid Cap 15x Strategy, you can compare the effects of market volatilities on Davis Financial and Mid 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 Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Financial and Mid Cap.

Diversification Opportunities for Davis Financial and Mid Cap

0.95

Correlation Coefficient

Davis Financial  Mid Cap

Almost no diversification

The 3 months correlation between Davis and Mid is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Mid Cap 15x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap 15x 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 Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap 15x has no effect on the direction of Davis Financial i.e., Davis Financial and Mid Cap go up and down completely randomly.

Pair Corralation between Davis Financial and Mid Cap

Assuming the 90 days horizon Davis Financial is expected to generate 1.25 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Davis Financial Fund is 1.03 times less risky than Mid Cap. It trades about 0.2 of its potential returns per unit of risk. Mid Cap 15x Strategy is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  13,240  in Mid Cap 15x Strategy on October 22, 2024 and sell it today you would earn a total of  648.00  from holding Mid Cap 15x Strategy or generate 4.89% return on investment over 90 days.

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

Davis Financial Fund  vs.  Mid Cap 15x Strategy

Davis Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 4 (%) 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.

Mid Cap 15x

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Mid Cap 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 Mid Cap

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

The idea behind Davis Financial Fund and Mid Cap 15x Strategy 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.