Correlation Between Davis Select and First Trust

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

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

Diversification Opportunities for Davis Select and First Trust

0.09

Correlation Coefficient

Davis Select  First Trust

Significant diversification

The 3 months correlation between Davis and First is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Davis Select International and First Trust Switzerland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Switzerland and Davis Select 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 Davis Select International are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Switzerland has no effect on the direction of Davis Select i.e., Davis Select and First Trust go up and down completely randomly.

Pair Corralation between Davis Select and First Trust

Given the investment horizon of 90 days Davis Select International is expected to generate 1.62 times more return on investment than First Trust. However, Davis Select is 1.62 times more volatile than First Trust Switzerland. It trades about 0.49 of its potential returns per unit of risk. First Trust Switzerland is currently generating about 0.39 per unit of risk. If you would invest  1,885  in Davis Select International on February 17, 2024 and sell it today you would earn a total of  272.00  from holding Davis Select International or generate 14.43% return on investment over 90 days.

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

Davis Select International  vs.  First Trust Switzerland

Davis Select Interna

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select International are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Davis Select unveiled solid returns over the last few months and may actually be approaching a breakup point.

First Trust Switzerland

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Switzerland are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Davis Select and First Trust

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

The idea behind Davis Select International and First Trust Switzerland 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.