Correlation Between Sit Government and Davis Real

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

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

Diversification Opportunities for Sit Government and Davis Real

0.7

Correlation Coefficient

Sit Government  Davis Real

Poor diversification

The 3 months correlation between Sit and Davis is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Sit Government Securities 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 Sit Government 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 Sit Government Securities 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 Sit Government i.e., Sit Government and Davis Real go up and down completely randomly.

Pair Corralation between Sit Government and Davis Real

Assuming the 90 days horizon Sit Government is expected to generate 2.58 times less return on investment than Davis Real. But when comparing it to its historical volatility, Sit Government Securities is 4.39 times less risky than Davis Real. It trades about 0.07 of its potential returns per unit of risk. Davis Real Estate is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,935  in Davis Real Estate on September 12, 2024 and sell it today you would earn a total of  555.00  from holding Davis Real Estate or generate 14.1% return on investment over 90 days.

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

Sit Government Securities  vs.  Davis Real Estate

Sit Government Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sit Government Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sit Government 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

0 of 100

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 Sit Government and Davis Real

The main advantage of trading using opposite Sit Government and Davis Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sit Government 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 Sit Government Securities 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.