Correlation Between Vanguard Large and Davis Select

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

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

Diversification Opportunities for Vanguard Large and Davis Select

0.81

Correlation Coefficient

Vanguard Large  Davis Select

Very poor diversification

The 3 months correlation between Vanguard and Davis is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index 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 Vanguard Large 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 Large Cap Index 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 Vanguard Large i.e., Vanguard Large and Davis Select go up and down completely randomly.

Pair Corralation between Vanguard Large and Davis Select

Allowing for the 90-day total investment horizon Vanguard Large Cap Index is expected to generate 1.08 times more return on investment than Davis Select. However, Vanguard Large is 1.08 times more volatile than Davis Select Equity. It trades about 0.08 of its potential returns per unit of risk. Davis Select Equity is currently generating about 0.03 per unit of risk. If you would invest  27,431  in Vanguard Large Cap Index on October 26, 2024 and sell it today you would earn a total of  715.00  from holding Vanguard Large Cap Index or generate 2.61% return on investment over 90 days.

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

Vanguard Large Cap Index  vs.  Davis Select Equity

Vanguard Large Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Large Cap Index are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vanguard Large may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Davis Select Equity

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select Equity are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Davis Select may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Vanguard Large and Davis Select

The main advantage of trading using opposite Vanguard Large and Davis Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Large 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 Vanguard Large Cap Index 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.

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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.