Correlation Between Davis Financial and Simt Small

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

Diversification Opportunities for Davis Financial and Simt Small

0.36

Correlation Coefficient

Davis Financial  Simt Small

Weak diversification

The 3 months correlation between Davis and Simt is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Simt Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simt Small Cap 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 Simt Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simt Small Cap has no effect on the direction of Davis Financial i.e., Davis Financial and Simt Small go up and down completely randomly.

Pair Corralation between Davis Financial and Simt Small

Assuming the 90 days horizon Davis Financial Fund is expected to generate 0.8 times more return on investment than Simt Small. However, Davis Financial Fund is 1.25 times less risky than Simt Small. It trades about 0.06 of its potential returns per unit of risk. Simt Small Cap is currently generating about -0.11 per unit of risk. If you would invest  6,387  in Davis Financial Fund on December 20, 2024 and sell it today you would earn a total of  236.00  from holding Davis Financial Fund or generate 3.7% return on investment over 90 days.

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

Davis Financial Fund  vs.  Simt Small Cap

Davis Financial

Risk-Adjusted Performance

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.

Simt Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simt Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Davis Financial and Simt Small

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

The idea behind Davis Financial Fund and Simt Small Cap 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.