Correlation Between International Equity and Davenport Small

Can any of the company-specific risk be diversified away by investing in both International Equity and Davenport Small 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 International Equity and Davenport Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between International Equity Fund and Davenport Small Cap, you can compare the effects of market volatilities on International Equity and Davenport Small 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 International Equity with a short position of Davenport Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Davenport Small.

Diversification Opportunities for International Equity and Davenport Small

-0.44

Correlation Coefficient

International Equity  Davenport Small

Very good diversification

The 3 months correlation between International and Davenport is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Fund and Davenport Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davenport Small Cap and International Equity 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 International Equity Fund are associated (or correlated) with Davenport Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davenport Small Cap has no effect on the direction of International Equity i.e., International Equity and Davenport Small go up and down completely randomly.

Pair Corralation between International Equity and Davenport Small

Assuming the 90 days horizon International Equity Fund is expected to under-perform the Davenport Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, International Equity Fund is 1.23 times less risky than Davenport Small. The mutual fund trades about -0.23 of its potential returns per unit of risk. The Davenport Small Cap is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,746  in Davenport Small Cap on October 4, 2024 and sell it today you would lose (2.00) from holding Davenport Small Cap or give up 0.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

International Equity Fund  vs.  Davenport Small Cap

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Davenport Small Cap

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with International Equity and Davenport Small

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

The idea behind International Equity Fund and Davenport Small Cap 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.