Correlation Between Davis Financial and Aquila Tax-free

Can any of the company-specific risk be diversified away by investing in both Davis Financial and Aquila Tax-free 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 Aquila Tax-free 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 Aquila Tax Free Trust, you can compare the effects of market volatilities on Davis Financial and Aquila Tax-free 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 Aquila Tax-free. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Financial and Aquila Tax-free.

Diversification Opportunities for Davis Financial and Aquila Tax-free

-0.47

Correlation Coefficient

Davis Financial  Aquila Tax-free

Very good diversification

The 3 months correlation between Davis and Aquila is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Aquila Tax Free Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aquila Tax Free 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 Aquila Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aquila Tax Free has no effect on the direction of Davis Financial i.e., Davis Financial and Aquila Tax-free go up and down completely randomly.

Pair Corralation between Davis Financial and Aquila Tax-free

Assuming the 90 days horizon Davis Financial Fund is expected to generate 6.18 times more return on investment than Aquila Tax-free. However, Davis Financial is 6.18 times more volatile than Aquila Tax Free Trust. It trades about 0.34 of its potential returns per unit of risk. Aquila Tax Free Trust is currently generating about 0.16 per unit of risk. If you would invest  6,669  in Davis Financial Fund on September 3, 2024 and sell it today you would earn a total of  717.00  from holding Davis Financial Fund or generate 10.75% return on investment over 90 days.

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

Davis Financial Fund  vs.  Aquila Tax Free Trust

Davis Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 14 (%) 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.

Aquila Tax Free

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aquila Tax Free Trust are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Aquila Tax-free is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Davis Financial and Aquila Tax-free

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

The idea behind Davis Financial Fund and Aquila Tax Free Trust 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.