Correlation Between Capital Income and Davenport Small

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

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

Diversification Opportunities for Capital Income and Davenport Small

-0.21

Correlation Coefficient

Capital Income  Davenport Small

Very good diversification

The 3 months correlation between Capital and Davenport is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Davenport Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davenport Small Cap and Capital Income 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 Capital Income Builder are associated (or correlated) with Davenport Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davenport Small Cap has no effect on the direction of Capital Income i.e., Capital Income and Davenport Small go up and down completely randomly.

Pair Corralation between Capital Income and Davenport Small

Assuming the 90 days horizon Capital Income Builder is expected to under-perform the Davenport Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Capital Income Builder is 2.71 times less risky than Davenport Small. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Davenport Small Cap is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,718  in Davenport Small Cap on September 16, 2024 and sell it today you would earn a total of  144.00  from holding Davenport Small Cap or generate 8.38% return on investment over 90 days.

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

Capital Income Builder  vs.  Davenport Small Cap

Capital Income Builder

Risk-Adjusted Performance

0 of 100

Very Weak

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

Davenport Small Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davenport Small Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Davenport Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Capital Income and Davenport Small

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

The idea behind Capital Income Builder and Davenport Small Cap 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.