Correlation Between Kinetics Small and Davis Global

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

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

Diversification Opportunities for Kinetics Small and Davis Global

0.66

Correlation Coefficient

Kinetics Small  Davis Global

Poor diversification

The 3 months correlation between Kinetics and Davis is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Davis Global Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Global and Kinetics Small 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 Kinetics Small Cap are associated (or correlated) with Davis Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Global has no effect on the direction of Kinetics Small i.e., Kinetics Small and Davis Global go up and down completely randomly.

Pair Corralation between Kinetics Small and Davis Global

Assuming the 90 days horizon Kinetics Small Cap is expected to generate 1.48 times more return on investment than Davis Global. However, Kinetics Small is 1.48 times more volatile than Davis Global Fund. It trades about 0.38 of its potential returns per unit of risk. Davis Global Fund is currently generating about 0.16 per unit of risk. If you would invest  14,501  in Kinetics Small Cap on September 2, 2024 and sell it today you would earn a total of  8,297  from holding Kinetics Small Cap or generate 57.22% return on investment over 90 days.

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

Kinetics Small Cap  vs.  Davis Global Fund

Kinetics Small Cap

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 30 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Small showed solid returns over the last few months and may actually be approaching a breakup point.

Davis Global

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Global Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Davis Global showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kinetics Small and Davis Global

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

The idea behind Kinetics Small Cap and Davis Global 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.