Correlation Between Davis Appreciation and Omni Small-cap

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

By analyzing existing cross correlation between Davis Appreciation Income and Omni Small Cap Value, you can compare the effects of market volatilities on Davis Appreciation and Omni Small-cap 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 Appreciation with a short position of Omni Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Appreciation and Omni Small-cap.

Diversification Opportunities for Davis Appreciation and Omni Small-cap

0.95

Correlation Coefficient

Davis Appreciation  Omni Small-cap

Almost no diversification

The 3 months correlation between Davis and Omni is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Davis Appreciation Income and Omni Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omni Small Cap and Davis Appreciation 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 Appreciation Income are associated (or correlated) with Omni Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omni Small Cap has no effect on the direction of Davis Appreciation i.e., Davis Appreciation and Omni Small-cap go up and down completely randomly.

Pair Corralation between Davis Appreciation and Omni Small-cap

Assuming the 90 days horizon Davis Appreciation is expected to generate 1.28 times less return on investment than Omni Small-cap. But when comparing it to its historical volatility, Davis Appreciation Income is 1.94 times less risky than Omni Small-cap. It trades about 0.16 of its potential returns per unit of risk. Omni Small Cap Value is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,956  in Omni Small Cap Value on September 2, 2024 and sell it today you would earn a total of  181.00  from holding Omni Small Cap Value or generate 9.25% return on investment over 90 days.

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

Davis Appreciation Income  vs.  Omni Small Cap Value

Davis Appreciation Income

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Appreciation Income are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Davis Appreciation may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Omni Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Omni Small Cap Value are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Omni Small-cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Davis Appreciation and Omni Small-cap

The main advantage of trading using opposite Davis Appreciation and Omni Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davis Appreciation position performs unexpectedly, Omni Small-cap 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 Omni Small-cap will offset losses from the drop in Omni Small-cap's long position.

The idea behind Davis Appreciation Income and Omni Small Cap Value 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.