Correlation Between Nasdaq-100 Index and Davis Financial

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100 Index 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 Nasdaq-100 Index and Davis Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 Index Fund and Davis Financial Fund, you can compare the effects of market volatilities on Nasdaq-100 Index 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 Nasdaq-100 Index with a short position of Davis Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100 Index and Davis Financial.

Diversification Opportunities for Nasdaq-100 Index and Davis Financial

0.63

Correlation Coefficient

Nasdaq-100 Index  Davis Financial

Poor diversification

The 3 months correlation between Nasdaq-100 and Davis is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Index Fund and Davis Financial Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Financial and Nasdaq-100 Index 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 Nasdaq 100 Index Fund 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 Nasdaq-100 Index i.e., Nasdaq-100 Index and Davis Financial go up and down completely randomly.

Pair Corralation between Nasdaq-100 Index and Davis Financial

Assuming the 90 days horizon Nasdaq 100 Index Fund is expected to generate 1.03 times more return on investment than Davis Financial. However, Nasdaq-100 Index is 1.03 times more volatile than Davis Financial Fund. It trades about 0.11 of its potential returns per unit of risk. Davis Financial Fund is currently generating about 0.05 per unit of risk. If you would invest  2,895  in Nasdaq 100 Index Fund on October 2, 2024 and sell it today you would earn a total of  2,276  from holding Nasdaq 100 Index Fund or generate 78.62% return on investment over 90 days.

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

Nasdaq 100 Index Fund  vs.  Davis Financial Fund

Nasdaq 100 Index

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 Index Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Nasdaq-100 Index 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

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental 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 Nasdaq-100 Index and Davis Financial

The main advantage of trading using opposite Nasdaq-100 Index and Davis Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100 Index 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 Nasdaq 100 Index Fund 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.