Correlation Between Davis Real and Sterling Capital

Can any of the company-specific risk be diversified away by investing in both Davis Real and Sterling Capital 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 Real and Sterling Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Davis Real Estate and Sterling Capital Stratton, you can compare the effects of market volatilities on Davis Real and Sterling Capital 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 Real with a short position of Sterling Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Real and Sterling Capital.

Diversification Opportunities for Davis Real and Sterling Capital

0.73

Correlation Coefficient

Davis Real  Sterling Capital

Poor diversification

The 3 months correlation between Davis and Sterling is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Davis Real Estate and Sterling Capital Stratton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Stratton and Davis Real 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 Real Estate are associated (or correlated) with Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Stratton has no effect on the direction of Davis Real i.e., Davis Real and Sterling Capital go up and down completely randomly.

Pair Corralation between Davis Real and Sterling Capital

Assuming the 90 days horizon Davis Real is expected to generate 2.96 times less return on investment than Sterling Capital. In addition to that, Davis Real is 1.03 times more volatile than Sterling Capital Stratton. It trades about 0.01 of its total potential returns per unit of risk. Sterling Capital Stratton is currently generating about 0.04 per unit of volatility. If you would invest  3,510  in Sterling Capital Stratton on December 30, 2024 and sell it today you would earn a total of  74.00  from holding Sterling Capital Stratton or generate 2.11% return on investment over 90 days.

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

Davis Real Estate  vs.  Sterling Capital Stratton

Davis Real Estate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Davis Real Estate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Davis Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sterling Capital Stratton

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Capital Stratton are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Sterling Capital 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 Real and Sterling Capital

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

The idea behind Davis Real Estate and Sterling Capital Stratton 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.