Correlation Between Davis Financial and Nasdaq 100

Can any of the company-specific risk be diversified away by investing in both Davis Financial and Nasdaq 100 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 Nasdaq 100 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 Nasdaq 100 2x Strategy, you can compare the effects of market volatilities on Davis Financial and Nasdaq 100 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 Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Financial and Nasdaq 100.

Diversification Opportunities for Davis Financial and Nasdaq 100

0.82

Correlation Coefficient

Davis Financial  Nasdaq 100

Very poor diversification

The 3 months correlation between Davis and Nasdaq is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Nasdaq 100 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 2x 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 Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 2x has no effect on the direction of Davis Financial i.e., Davis Financial and Nasdaq 100 go up and down completely randomly.

Pair Corralation between Davis Financial and Nasdaq 100

Assuming the 90 days horizon Davis Financial Fund is expected to under-perform the Nasdaq 100. But the mutual fund apears to be less risky and, when comparing its historical volatility, Davis Financial Fund is 2.24 times less risky than Nasdaq 100. The mutual fund trades about -0.28 of its potential returns per unit of risk. The Nasdaq 100 2x Strategy is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  40,837  in Nasdaq 100 2x Strategy on September 20, 2024 and sell it today you would lose (1,253) from holding Nasdaq 100 2x Strategy or give up 3.07% of portfolio value over 90 days.

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

Davis Financial Fund  vs.  Nasdaq 100 2x Strategy

Davis Financial

Risk-Adjusted Performance

0 of 100

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.

Nasdaq 100 2x

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Nasdaq 100 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 Nasdaq 100

The main advantage of trading using opposite Davis Financial and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davis Financial position performs unexpectedly, Nasdaq 100 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 Nasdaq 100 will offset losses from the drop in Nasdaq 100's long position.

The idea behind Davis Financial Fund and Nasdaq 100 2x 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.