Correlation Between Davenport Value and Davenport Core

Can any of the company-specific risk be diversified away by investing in both Davenport Value and Davenport Core 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 Davenport Value and Davenport Core into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Davenport Value Income and Davenport E Fund, you can compare the effects of market volatilities on Davenport Value and Davenport Core 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 Davenport Value with a short position of Davenport Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davenport Value and Davenport Core.

Diversification Opportunities for Davenport Value and Davenport Core

0.94

Correlation Coefficient

Davenport Value  Davenport Core

Almost no diversification

The 3 months correlation between Davenport and Davenport is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Davenport Value Income and Davenport E Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davenport E Fund and Davenport Value 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 Davenport Value Income are associated (or correlated) with Davenport Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davenport E Fund has no effect on the direction of Davenport Value i.e., Davenport Value and Davenport Core go up and down completely randomly.

Pair Corralation between Davenport Value and Davenport Core

Assuming the 90 days horizon Davenport Value is expected to generate 1.55 times less return on investment than Davenport Core. But when comparing it to its historical volatility, Davenport Value Income is 1.32 times less risky than Davenport Core. It trades about 0.16 of its potential returns per unit of risk. Davenport E Fund is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,543  in Davenport E Fund on September 2, 2024 and sell it today you would earn a total of  320.00  from holding Davenport E Fund or generate 9.03% return on investment over 90 days.

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

Davenport Value Income  vs.  Davenport E Fund

Davenport Value Income

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davenport Value Income are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davenport Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Davenport E Fund

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davenport E 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, Davenport Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Davenport Value and Davenport Core

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

The idea behind Davenport Value Income and Davenport E 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.