Correlation Between Davis Financial and Shenkman Short

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

Diversification Opportunities for Davis Financial and Shenkman Short

0.5

Correlation Coefficient

Davis Financial  Shenkman Short

Very weak diversification

The 3 months correlation between Davis and Shenkman is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Shenkman Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenkman Short Duration 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 Shenkman Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenkman Short Duration has no effect on the direction of Davis Financial i.e., Davis Financial and Shenkman Short go up and down completely randomly.

Pair Corralation between Davis Financial and Shenkman Short

Assuming the 90 days horizon Davis Financial is expected to generate 1.48 times less return on investment than Shenkman Short. In addition to that, Davis Financial is 9.61 times more volatile than Shenkman Short Duration. It trades about 0.01 of its total potential returns per unit of risk. Shenkman Short Duration is currently generating about 0.13 per unit of volatility. If you would invest  978.00  in Shenkman Short Duration on December 4, 2024 and sell it today you would earn a total of  8.00  from holding Shenkman Short Duration or generate 0.82% return on investment over 90 days.

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

Davis Financial Fund  vs.  Shenkman Short Duration

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.

Shenkman Short Duration

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenkman Short Duration are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Shenkman Short 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 Shenkman Short

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

The idea behind Davis Financial Fund and Shenkman Short Duration 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.