Correlation Between SPDR Russell and Davis Select

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

By analyzing existing cross correlation between SPDR Russell 1000 and Davis Select Equity, you can compare the effects of market volatilities on SPDR Russell 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 SPDR Russell with a short position of Davis Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Russell and Davis Select.

Diversification Opportunities for SPDR Russell and Davis Select

0.93

Correlation Coefficient

SPDR Russell  Davis Select

Almost no diversification

The 3 months correlation between SPDR and Davis is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Russell 1000 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 SPDR Russell 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 SPDR Russell 1000 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 SPDR Russell i.e., SPDR Russell and Davis Select go up and down completely randomly.

Pair Corralation between SPDR Russell and Davis Select

Given the investment horizon of 90 days SPDR Russell 1000 is expected to under-perform the Davis Select. But the etf apears to be less risky and, when comparing its historical volatility, SPDR Russell 1000 is 1.06 times less risky than Davis Select. The etf trades about -0.14 of its potential returns per unit of risk. The Davis Select Equity is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  3,975  in Davis Select Equity on February 4, 2024 and sell it today you would lose (50.00) from holding Davis Select Equity or give up 1.26% of portfolio value over 90 days.

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

SPDR Russell 1000  vs.  Davis Select Equity

SPDR Russell 1000

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Russell 1000 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, SPDR Russell is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Davis Select Equity

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select Equity are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Davis Select is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR Russell and Davis Select

The main advantage of trading using opposite SPDR Russell and Davis Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Russell 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 SPDR Russell 1000 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.