Correlation Between Davis Financial and Sterling Capital

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

Diversification Opportunities for Davis Financial and Sterling Capital

-0.4

Correlation Coefficient

Davis Financial  Sterling Capital

Very good diversification

The 3 months correlation between Davis and Sterling is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Sterling Capital Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Short 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 Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Short has no effect on the direction of Davis Financial i.e., Davis Financial and Sterling Capital go up and down completely randomly.

Pair Corralation between Davis Financial and Sterling Capital

Assuming the 90 days horizon Davis Financial Fund is expected to generate 11.91 times more return on investment than Sterling Capital. However, Davis Financial is 11.91 times more volatile than Sterling Capital Short. It trades about 0.19 of its potential returns per unit of risk. Sterling Capital Short is currently generating about -0.02 per unit of risk. If you would invest  6,036  in Davis Financial Fund on September 13, 2024 and sell it today you would earn a total of  843.00  from holding Davis Financial Fund or generate 13.97% 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.  Sterling Capital Short

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 technical and fundamental indicators, Davis Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Sterling Capital Short

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sterling Capital Short has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Sterling Capital 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 Sterling Capital

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

The idea behind Davis Financial Fund and Sterling Capital Short 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.