Correlation Between Materials Portfolio and Davis Financial

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

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

Diversification Opportunities for Materials Portfolio and Davis Financial

0.85

Correlation Coefficient

Materials Portfolio  Davis Financial

Very poor diversification

The 3 months correlation between Materials and Davis is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Davis Financial Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Financial and Materials Portfolio 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 Materials Portfolio Fidelity 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 Materials Portfolio i.e., Materials Portfolio and Davis Financial go up and down completely randomly.

Pair Corralation between Materials Portfolio and Davis Financial

Assuming the 90 days horizon Materials Portfolio is expected to generate 1.86 times less return on investment than Davis Financial. In addition to that, Materials Portfolio is 1.06 times more volatile than Davis Financial Fund. It trades about 0.02 of its total potential returns per unit of risk. Davis Financial Fund is currently generating about 0.04 per unit of volatility. If you would invest  4,536  in Davis Financial Fund on February 15, 2024 and sell it today you would earn a total of  1,261  from holding Davis Financial Fund or generate 27.8% return on investment over 90 days.

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

Materials Portfolio Fidelity  vs.  Davis Financial Fund

Materials Portfolio

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Fidelity are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Materials Portfolio may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Davis Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Davis Financial may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Materials Portfolio and Davis Financial

The main advantage of trading using opposite Materials Portfolio and Davis Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Portfolio 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 Materials Portfolio Fidelity 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.