Correlation Between Davis Financial and Intermediate-term

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

Diversification Opportunities for Davis Financial and Intermediate-term

0.35

Correlation Coefficient

Davis Financial  Intermediate-term

Weak diversification

The 3 months correlation between Davis and Intermediate-term is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond 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 Intermediate-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of Davis Financial i.e., Davis Financial and Intermediate-term go up and down completely randomly.

Pair Corralation between Davis Financial and Intermediate-term

Assuming the 90 days horizon Davis Financial Fund is expected to generate 3.7 times more return on investment than Intermediate-term. However, Davis Financial is 3.7 times more volatile than Intermediate Term Bond Fund. It trades about 0.07 of its potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about 0.13 per unit of risk. If you would invest  6,465  in Davis Financial Fund on December 26, 2024 and sell it today you would earn a total of  271.00  from holding Davis Financial Fund or generate 4.19% 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.  Intermediate Term Bond Fund

Davis Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 5 (%) 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.

Intermediate Term Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Term Bond Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Intermediate-term 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 Intermediate-term

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

The idea behind Davis Financial Fund and Intermediate Term Bond Fund 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.

Check out your portfolio center.

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.