Correlation Between Absolute Convertible and Davis Financial

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Can any of the company-specific risk be diversified away by investing in both Absolute Convertible 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 Absolute Convertible and Davis Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Absolute Convertible Arbitrage and Davis Financial Fund, you can compare the effects of market volatilities on Absolute Convertible 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 Absolute Convertible with a short position of Davis Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Convertible and Davis Financial.

Diversification Opportunities for Absolute Convertible and Davis Financial

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Absolute and Davis is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Convertible Arbitrage and Davis Financial Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Financial and Absolute Convertible 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 Absolute Convertible Arbitrage 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 Absolute Convertible i.e., Absolute Convertible and Davis Financial go up and down completely randomly.

Pair Corralation between Absolute Convertible and Davis Financial

Assuming the 90 days horizon Absolute Convertible Arbitrage is expected to generate 0.08 times more return on investment than Davis Financial. However, Absolute Convertible Arbitrage is 12.56 times less risky than Davis Financial. It trades about 0.38 of its potential returns per unit of risk. Davis Financial Fund is currently generating about 0.0 per unit of risk. If you would invest  1,146  in Absolute Convertible Arbitrage on September 12, 2024 and sell it today you would earn a total of  5.00  from holding Absolute Convertible Arbitrage or generate 0.44% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Absolute Convertible Arbitrage  vs.  Davis Financial Fund

 Performance 
       Timeline  
Absolute Convertible 

Risk-Adjusted Performance

40 of 100

 
Weak
 
Strong
Very Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Convertible Arbitrage are ranked lower than 40 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Absolute Convertible is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Davis Financial 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
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 fundamental indicators, Davis Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Absolute Convertible and Davis Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Absolute Convertible and Davis Financial

The main advantage of trading using opposite Absolute Convertible and Davis Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absolute Convertible 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 Absolute Convertible Arbitrage 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.
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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