Correlation Between Davis Financial and Western Asset

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

Diversification Opportunities for Davis Financial and Western Asset

0.37

Correlation Coefficient

Davis Financial  Western Asset

Weak diversification

The 3 months correlation between Davis and Western is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Western Asset Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Diversified 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Diversified has no effect on the direction of Davis Financial i.e., Davis Financial and Western Asset go up and down completely randomly.

Pair Corralation between Davis Financial and Western Asset

Assuming the 90 days horizon Davis Financial Fund is expected to under-perform the Western Asset. In addition to that, Davis Financial is 3.59 times more volatile than Western Asset Diversified. It trades about -0.04 of its total potential returns per unit of risk. Western Asset Diversified is currently generating about -0.09 per unit of volatility. If you would invest  1,549  in Western Asset Diversified on November 29, 2024 and sell it today you would lose (23.00) from holding Western Asset Diversified or give up 1.48% of portfolio value over 90 days.

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

Davis Financial Fund  vs.  Western Asset Diversified

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.

Western Asset Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Asset Diversified has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Western Asset 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 Western Asset

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

The idea behind Davis Financial Fund and Western Asset Diversified 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.