Correlation Between Davis Financial and State Street

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

Diversification Opportunities for Davis Financial and State Street

0.83

Correlation Coefficient

Davis Financial  State Street

Very poor diversification

The 3 months correlation between Davis and State is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and State Street Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Target 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Target has no effect on the direction of Davis Financial i.e., Davis Financial and State Street go up and down completely randomly.

Pair Corralation between Davis Financial and State Street

Assuming the 90 days horizon Davis Financial Fund is expected to generate 3.49 times more return on investment than State Street. However, Davis Financial is 3.49 times more volatile than State Street Target. It trades about 0.06 of its potential returns per unit of risk. State Street Target is currently generating about 0.08 per unit of risk. If you would invest  6,431  in Davis Financial Fund on December 27, 2024 and sell it today you would earn a total of  260.00  from holding Davis Financial Fund or generate 4.04% return on investment over 90 days.

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

Davis Financial Fund  vs.  State Street Target

Davis Financial

Risk-Adjusted Performance

Modest

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.

State Street Target

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Target are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, State Street 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 State Street

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

The idea behind Davis Financial Fund and State Street Target 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.