Correlation Between Vanguard Developed and Davis International

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

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

Diversification Opportunities for Vanguard Developed and Davis International

0.93

Correlation Coefficient

Vanguard Developed  Davis International

Almost no diversification

The 3 months correlation between VANGUARD and Davis is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Developed Markets and Davis International Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis International and Vanguard Developed 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 Vanguard Developed Markets are associated (or correlated) with Davis International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis International has no effect on the direction of Vanguard Developed i.e., Vanguard Developed and Davis International go up and down completely randomly.

Pair Corralation between Vanguard Developed and Davis International

Assuming the 90 days horizon Vanguard Developed Markets is expected to generate 0.61 times more return on investment than Davis International. However, Vanguard Developed Markets is 1.63 times less risky than Davis International. It trades about 0.13 of its potential returns per unit of risk. Davis International Fund is currently generating about 0.08 per unit of risk. If you would invest  1,541  in Vanguard Developed Markets on December 29, 2024 and sell it today you would earn a total of  110.00  from holding Vanguard Developed Markets or generate 7.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Vanguard Developed Markets  vs.  Davis International Fund

Vanguard Developed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Developed Markets are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Developed may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Davis International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Davis International Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Davis International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vanguard Developed and Davis International

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

The idea behind Vanguard Developed Markets and Davis International 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.