Correlation Between Davis Government and Emerging Markets

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

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

Diversification Opportunities for Davis Government and Emerging Markets

-0.2

Correlation Coefficient

Davis Government  Emerging Markets

Good diversification

The 3 months correlation between Davis and Emerging is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Davis Government Bond and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Davis Government 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 Government Bond are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets has no effect on the direction of Davis Government i.e., Davis Government and Emerging Markets go up and down completely randomly.

Pair Corralation between Davis Government and Emerging Markets

Assuming the 90 days horizon Davis Government Bond is expected to under-perform the Emerging Markets. But the mutual fund apears to be less risky and, when comparing its historical volatility, Davis Government Bond is 8.97 times less risky than Emerging Markets. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Emerging Markets Fund is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,076  in Emerging Markets Fund on September 13, 2024 and sell it today you would earn a total of  43.00  from holding Emerging Markets Fund or generate 4.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Davis Government Bond  vs.  Emerging Markets Fund

Davis Government Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Government Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Davis Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerging Markets

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Emerging Markets 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 Government and Emerging Markets

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

The idea behind Davis Government Bond and Emerging Markets 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.