Correlation Between Davis Financial and American Beacon
Can any of the company-specific risk be diversified away by investing in both Davis Financial and American Beacon 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 American Beacon 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 American Beacon Stephens, you can compare the effects of market volatilities on Davis Financial and American Beacon 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 American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Financial and American Beacon.
Diversification Opportunities for Davis Financial and American Beacon
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between DAVIS and American is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and American Beacon Stephens in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Stephens 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 American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Stephens has no effect on the direction of Davis Financial i.e., Davis Financial and American Beacon go up and down completely randomly.
Pair Corralation between Davis Financial and American Beacon
Assuming the 90 days horizon Davis Financial is expected to generate 1.05 times less return on investment than American Beacon. In addition to that, Davis Financial is 1.6 times more volatile than American Beacon Stephens. It trades about 0.31 of its total potential returns per unit of risk. American Beacon Stephens is currently generating about 0.52 per unit of volatility. If you would invest 3,798 in American Beacon Stephens on September 1, 2024 and sell it today you would earn a total of 427.00 from holding American Beacon Stephens or generate 11.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Davis Financial Fund vs. American Beacon Stephens
Performance |
| Timeline |
| Davis Financial |
| American Beacon Stephens |
Davis Financial and American Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Davis Financial and American Beacon
The main advantage of trading using opposite Davis Financial and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davis Financial position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.| Davis Financial vs. Davis International Fund | Davis Financial vs. Davis International Fund | Davis Financial vs. Davis International Fund | Davis Financial vs. Davis Real Estate |
| American Beacon vs. Davis Financial Fund | American Beacon vs. Mesirow Financial Small | American Beacon vs. Gabelli Global Financial | American Beacon vs. Prudential Jennison Financial |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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