Correlation Between Moderately Aggressive and Davis Financial

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

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

Diversification Opportunities for Moderately Aggressive and Davis Financial

0.9

Correlation Coefficient

Moderately Aggressive  Davis Financial

Almost no diversification

The 3 months correlation between Moderately and Davis is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced and Davis Financial Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Financial and Moderately Aggressive 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 Moderately Aggressive Balanced are associated (or correlated) with Davis Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Financial has no effect on the direction of Moderately Aggressive i.e., Moderately Aggressive and Davis Financial go up and down completely randomly.

Pair Corralation between Moderately Aggressive and Davis Financial

Assuming the 90 days horizon Moderately Aggressive is expected to generate 2.36 times less return on investment than Davis Financial. But when comparing it to its historical volatility, Moderately Aggressive Balanced is 1.82 times less risky than Davis Financial. It trades about 0.17 of its potential returns per unit of risk. Davis Financial Fund is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  6,739  in Davis Financial Fund on October 26, 2024 and sell it today you would earn a total of  306.00  from holding Davis Financial Fund or generate 4.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	94.74%
Values	Daily Returns

Moderately Aggressive Balanced  vs.  Davis Financial Fund

Moderately Aggressive

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Aggressive Balanced are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Moderately Aggressive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Davis Financial

Risk-Adjusted Performance

5 of 100

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 basic indicators, Davis Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Moderately Aggressive and Davis Financial

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

The idea behind Moderately Aggressive Balanced and Davis Financial 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.