Correlation Between Leisure Fund and Davis Real

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

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

Diversification Opportunities for Leisure Fund and Davis Real

0.69

Correlation Coefficient

Leisure Fund  Davis Real

Poor diversification

The 3 months correlation between Leisure and Davis is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Leisure Fund Class and Davis Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Real Estate and Leisure Fund 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 Leisure Fund Class are associated (or correlated) with Davis Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Real Estate has no effect on the direction of Leisure Fund i.e., Leisure Fund and Davis Real go up and down completely randomly.

Pair Corralation between Leisure Fund and Davis Real

Assuming the 90 days horizon Leisure Fund Class is expected to generate 0.91 times more return on investment than Davis Real. However, Leisure Fund Class is 1.1 times less risky than Davis Real. It trades about -0.02 of its potential returns per unit of risk. Davis Real Estate is currently generating about -0.02 per unit of risk. If you would invest  8,110  in Leisure Fund Class on December 21, 2024 and sell it today you would lose (129.00) from holding Leisure Fund Class or give up 1.59% of portfolio value over 90 days.

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

Leisure Fund Class  vs.  Davis Real Estate

Leisure Fund Class

Risk-Adjusted Performance

Very Weak

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

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.

Pair Trading with Leisure Fund and Davis Real

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

The idea behind Leisure Fund Class and Davis Real Estate 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.