Correlation Between Davis Financial and Icon Equity

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

Diversification Opportunities for Davis Financial and Icon Equity

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Davis and Icon is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Icon Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icon Equity Income and Davis Financial 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 Financial Fund are associated (or correlated) with Icon Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icon Equity Income has no effect on the direction of Davis Financial i.e., Davis Financial and Icon Equity go up and down completely randomly.

Pair Corralation between Davis Financial and Icon Equity

Assuming the 90 days horizon Davis Financial Fund is expected to generate 1.28 times more return on investment than Icon Equity. However, Davis Financial is 1.28 times more volatile than Icon Equity Income. It trades about 0.03 of its potential returns per unit of risk. Icon Equity Income is currently generating about -0.18 per unit of risk. If you would invest  7,177  in Davis Financial Fund on September 12, 2024 and sell it today you would earn a total of  27.00  from holding Davis Financial Fund or generate 0.38% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Davis Financial Fund  vs.  Icon Equity Income

 Performance 
       Timeline  
Davis Financial 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Davis Financial showed solid returns over the last few months and may actually be approaching a breakup point.
Icon Equity Income 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Icon Equity Income are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Icon Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Davis Financial and Icon Equity Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Davis Financial and Icon Equity

The main advantage of trading using opposite Davis Financial and Icon Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davis Financial position performs unexpectedly, Icon Equity 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 Icon Equity will offset losses from the drop in Icon Equity's long position.
The idea behind Davis Financial Fund and Icon Equity Income 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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