Correlation Between Davis Financial and Vanguard Small-cap
Can any of the company-specific risk be diversified away by investing in both Davis Financial and Vanguard Small-cap 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 Vanguard Small-cap 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 Vanguard Small Cap Index, you can compare the effects of market volatilities on Davis Financial and Vanguard Small-cap 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 Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Financial and Vanguard Small-cap.
Diversification Opportunities for Davis Financial and Vanguard Small-cap
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Davis and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Vanguard Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Vanguard Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Davis Financial i.e., Davis Financial and Vanguard Small-cap go up and down completely randomly.
Pair Corralation between Davis Financial and Vanguard Small-cap
Assuming the 90 days horizon Davis Financial Fund is expected to generate 0.87 times more return on investment than Vanguard Small-cap. However, Davis Financial Fund is 1.14 times less risky than Vanguard Small-cap. It trades about 0.28 of its potential returns per unit of risk. Vanguard Small Cap Index is currently generating about 0.24 per unit of risk. If you would invest 6,719 in Davis Financial Fund on April 25, 2025 and sell it today you would earn a total of 1,071 from holding Davis Financial Fund or generate 15.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Davis Financial Fund vs. Vanguard Small Cap Index
Performance |
| Timeline |
| Davis Financial |
| Vanguard Small Cap |
Davis Financial and Vanguard Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Davis Financial and Vanguard Small-cap
The main advantage of trading using opposite Davis Financial and Vanguard Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davis Financial position performs unexpectedly, Vanguard Small-cap 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 Vanguard Small-cap will offset losses from the drop in Vanguard Small-cap's long position.| Davis Financial vs. Jhancock Global Equity | Davis Financial vs. Ab Global Risk | Davis Financial vs. Gamco Global Opportunity | Davis Financial vs. Barings Global Floating |
| Vanguard Small-cap vs. Vanguard Mid Cap Index | Vanguard Small-cap vs. Vanguard Total Bond | Vanguard Small-cap vs. Vanguard Institutional Index | Vanguard Small-cap vs. Vanguard Total International |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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