Correlation Between SPDR SP and Davis Select

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

By analyzing existing cross correlation between SPDR SP 500 and Davis Select Equity, you can compare the effects of market volatilities on SPDR SP and Davis Select 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 SPDR SP with a short position of Davis Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Davis Select.

Diversification Opportunities for SPDR SP and Davis Select

0.58

Correlation Coefficient

SPDR SP  Davis Select

Very weak diversification

The 3 months correlation between SPDR and Davis is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Davis Select Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Equity and SPDR SP 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 SPDR SP 500 are associated (or correlated) with Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Equity has no effect on the direction of SPDR SP i.e., SPDR SP and Davis Select go up and down completely randomly.

Pair Corralation between SPDR SP and Davis Select

Considering the 90-day investment horizon SPDR SP 500 is expected to under-perform the Davis Select. In addition to that, SPDR SP is 1.06 times more volatile than Davis Select Equity. It trades about -0.1 of its total potential returns per unit of risk. Davis Select Equity is currently generating about 0.0 per unit of volatility. If you would invest  4,271  in Davis Select Equity on December 17, 2024 and sell it today you would lose (24.00) from holding Davis Select Equity or give up 0.56% of portfolio value over 90 days.

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

SPDR SP 500  vs.  Davis Select Equity

SPDR SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Davis Select Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Davis Select Equity has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Davis Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and Davis Select

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

The idea behind SPDR SP 500 and Davis Select Equity 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.